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AT   LOS  ANGELES 


^OUTHLrN  BRANCH, 

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LIBRARY, 

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A, 


MARINE  INSURANCE 


ITS  PRINCIPLES  AND  PRACTICE 


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MARINE  INSURANCE 

ITS  PRINCIPLES 
AND   PRACTICE 


BY 

WILLIAM  D.  WINTER,  LL.  B. 

SPECIAL  LECTURER   ON   MARINE   INSURANCE,   NEW  YORK  UNIVERSITY, 

THIRD  VICE-PRESIDENT  ATLANTIC  MUTUAL  INSURANCE 

COMPANY   OF  NEW  YORK 


FiKST  Editiun 
Third  Impression 


McGRAW-HILL  BOOK  COMPANY,  Inc. 

NEW   YORK:    239   WEST  39TH  STREET 

LONDON:    6  &  8  BOUVERIE  ST.,  E.  C.  4 

1919 


^5?o^ 


coptriqht,  1919,  by  the 
McGraw-Hill  Book  Company,  Inc. 


THK     MAT"I,  K     rHKSS     TORK.     PA 


HE. 

VV  73  ^"^^ 

The  past  four  years  have  witnessed  many  changes  in  the  com- 
mercial hfe  of  the  United  States,  not  the  least  of  which  has  been 
the  renaissance  of  the  American  Merchant  Marine,  and  with  it  a 
marvellous  growth  in  our  overseas  trade.  Shipping,  banking 
and  insurance,  the  trinity  of  foreign  trade,  have  taken  a  new 
lease  of  life,  and  American  commercial  activities  are  reaching 
into  fields  hitherto  untouched  by  purely  American  enterprise. 

This  naturally  has  caused  a  demand  for  knowledge  concerning 
these  three  subjects.  New  York  University,  in  the  foreign 
trade  courses  offered  in  the  Wall  Street  Division  of  its  School 
of  Commerce,  Accounts  and  Finance,  has  met  this  demand.  It 
has  been  my  privilege  during  the  past  year  to  lecture  before  the 
University  on  the  subject  of  Marine  Insurance.  The  attendance 
at  these  lectures  has  indicated  that  a  real  need  exists  for  non- 
technical information  in  regard  to  this  important,  but  little 
known,  branch  of  insurance  science. 

It  therefore  seemed  fitting  that  the  matter  contained  in  the 
lectures  should  be  rewritten  and  published  in  book  form  so  that 
it  might  be  available  to  students,  and  to  shipping  men,  bankers, 
merchants  and  insurance  men  who  require  a  general  knowledge 
of  marine  insurance.  It  is  the  purpose  of  this  treatise  to  present 
the  subject  in  a  thorough  yet  simple  form,  so  that  the  principles 
and  practice  of  this  necessary  element  in  our  over-seas  commerce 
may  become  more  generally  known. 

I  wish  to  avail  myself  of  this  opportunity  of  expressing  my 
gratitude  to  many  who  have  taken  a  helpful  interest  in  the 
preparation  of  this  work,  making  special  mention  of  Mr.  Her- 
bert F.  Eggert  and  Professor  A.  Wellington  Taylor,  for  their 
aid  in  the  revision  of  the  manuscript. 

William  D.  Winter. 
New  York  City, 
February  1,  1919. 


CONTENTS 

Page 

Preface v 

Historical,  Introduction 1 

Origin  of  Marine  Insurance  Doubtful — Ancient  Commercial  Activ- 
ity— Early  Forms  of  Insurance — General  Average — Bottomry 
Bonds — Forms  of  Bottomry  Bonds  Distinguished— Grecian  Com- 
merce and  the  First  Insurance  Exchange — The  Carthaginians, 
Phoenicians  and  Romans — Commerce  in  the  Middle  Ages — The 
Hanseatic  League — The  First  Sea  Codes — Early  Insurance  Rules — 
Modern  Marine  Insurance — First  Use  of  Word  Insurance — The  Age 
of  Discovery — Rules  to  Prevent  Misuse  of  Insurance — Insurance 
Well  Established  in  Fifteenth  Century — The  "Guidon  de  la  Mer" 
— Marine  Insurance  in  England — The  Hansa  Merchants  and  the 
Steelyard — The  Lombards  in  England — Lombard  Street — Depar- 
ture of  Hansa  Merchants  and  Lombards — Influence  of  Foreign 
Merchants — First  English  Marine  Insurance  Statute — Individual 
Underwriters — Lloyd's  Coffee  House  and  Lloyd's  News — A  Meet- 
ing Place  of  Underwriters— Insurance  Companies  Organized — 
The  Monopoly — Growth  of  Marine  Insurance — Lloyd's— Standard 
Policy  Adopted — Increase  of  Individual  Underwriters — Efforts 
to  Incorporate  New  Companies — Lloyd's  Reorganized — The 
Monopoly  Repealed — New  Companies — Marine  Insurance  Law — 
Lord  Mansfield — The  Marine  Insurance  Act,  1906 — Early  Under- 
writing in  the  United  States — First  American  Insurance  Corpora- 
tion^Corporation  Development — Competition  Among  Companies 
and  Failures — The  Clipper  Ship  and  Insurance  Frauds — Marine 
Insurance  Revives — The  Civil  War — Foreign  Companies  Enter 
the  United  States — Decline  of  American  Merchant  Marine — 
The  Marine  Insurance  Market  Broadens — Little  American  Capital 
Invested  in  Marine  Companies — Steady  Growth  of  Marine  In- 
surance— The  World  War  and  New  American  Companies — The 
Future  of  Marine  Insurance  in  the  United  States. 

CHAPTER    1 

Physical  Geography  in  Its  Relation  to  Marine  Insurance 29 

Effect  of  Natural  Conditions  on  Trade  Routes — Water  Routes — 
Natural  Law  Discovered — Ocean  Navigation — Aids  to  Naviga- 
tion— Effect   of   the   Oceans   on   Climate — Ocean    Distances   are 


vm  CONTENTS 

Paoe 
Great — Tho  I'hj'sical  T'orcc  of  Nature — The  Wind  and  Storms — 
ElToct  of  Wind  on  Ocean  Routes — Wave  Force — The  Puwcr  of 
\\'aves — Seaquakes  and  Tidal  Waves — Tides — Effect  of  Tides 
on  Harbor  Development — Ocean  Currents — Calms — Fog — Ice — 
Darkness — Harbors  and  Their  Development — Types  of  Harbors — 
Drowned  Valley  Harl)ors^Barrier  Beach  Harbors — River  Harbors 
— Coral  Reef  Harl)ors — Crater  Harbors — Artificial  Harbors — 
Open  Roadsteads — Tidal  Harbors. 

CHAPTER    2 

CoMMERCIAF.    GEOGRAPHY    IN    It.S    RELATION    TO    MaRINE    INSURANCE. 

Commercial  Documents 44 

The  Processes  of  Trade — Commerce  is  the  Exchange  of  Products — 
The  Demand  for  Goods — The  Opening  of  New  Trade  Routes — 
Primitive  Barter — Types  of  Trade — The  Use  of  Symbols  and  the 
Bill  of  Exchange — Marine  Insurance  Essential  to  Overseas  Trade 
— Commercial  Documents — The  Invoice — Cost  Sales.  F.  O.  B. 
and  F.  A.  S. — Cost  and  Freight  Sales  (C  &  F) — Cost,  Insurance  and 
Freight  Sales  (C.  I.  F.) — Invoice  Determines  Relation  of  Buyer 
and  Seller — The  Charter  Party — Forms  of  Charters — The  Bill  of 
Lading — Bill  of  Lading  a  Contract  of  Carriage — Liability  of  Carrier 
Determined  b}'  Bill  of  Lading — The  Manifest — The  Marine  In- 
surance Policy  or  Certificate — The  Symbols  of  Ownership — The 
Draft  or  Bill  of  Exchange — Method  of  Collection  of  Draft — 
Trading  in  Bills  of  Exchange — Letters  of  Credit — The  Balance  of 
Trade — Goods  the  Basis  of  Exchange. 

CHAPTER  3 

Ships  and  Shipbuilding 61 

A  Vessel  the  Basis  of  all  Marine  Insurance — Mediums  Used  in 
Construction  of  Vessels — Wooden  Ships.  Difficulties  in  Con- 
struction— Green  Wood  and  Its  Effect — The  Fastenings  of  Wooden 
Vessels — Composite  Ships — Steel  Vessels — The  Marine  Engine — 
Liners  and  Tramps — Longitudinal  Framing — Bulk  Cargo  Carriers 
— The  Self-trimming  Vessel — Concrete  Ships — Lake  Vessels — 
River  and  Harbor  Craft — Types  of  Marine  Engines — W^hy  Does  a 
Vessel  Float? — Displacement — Displacement  Curve — When  Will  a 
Vessel  Float? — Buoj'ancy — P'ree-board  and  Load  Lines — The 
Plimsoll  Mark — The  Advantages  of  a  Load-line  Law — Stability. 
The  Centers  of  Buoyancy  and  Gravity — Why  a  Vessel  Rights  After 
Rolling— The  Law  of  Inertia — Shifted  Cargoes — The  Meta-c<nter. 
Stiff  and  Tender  Vessels — The  Control  of  Meta-center  Height — 
Loading  Problems. 


CONTENTS  ix 

CHAPTER    4 

Page 

The  Ship  as  a  Cargo  Carrier 77 

Stresses  and  Strains — ^The  Strain  of  Unequal  Weights — Strain 
of  Lateral  Pressure  and  of  Wave  Action — Panting  Strains — Other 
Strains — Vessels  in  Ballast — The  Classification  Societies — What  a 
"Class"  Signifies — ^Lloyd's  Register — Rival  Organizations — 
Necessity  for  Understanding  Classification  Society  Codes — The 
American  Record — Underwriters'  Surveyors — Underwriters' 
Organizations — Underwriters'  Boards  and  Loss  Agents — Salvage 
Associations — Maps,  Charts  and  Port  Books — The  Tools  of  the 
Underwriter — Factors  in  Underwriting — Nationality — Owners, 
Managers  and  Masters— Structural  Characteristics  of  Ship  and  Its 
Physical  Condition — Other  Considerations — The  Measurement 
of  Ships — The  Measurement  of  Cargo  Capacity — Cargoes  and 
Shipping  Packages — The  Moral  Hazard. 

CHAPTER  5 

The  Contract  of  Marine  Insurance.  Rules  for  Construction.  .  93 
Definition  of  Marine  Insurance — Not  a  Perfect  Contract  of  Indem- 
nity— Only  Fortuitous  Losses  Covered — Negligence  Should  Not  be 
Covered  by  Policy — The  Effect  of  Insurance — The  Law  of  Averages. 
Competition — Modern  Policy  Broad  in  Its  Protection — Good 
Faith — Elements  of  a  Contract — Corporate  and  Individual  Under- 
writers— ^An  Insurable  Interest  Necessary — The  Premium  a  Valid 
Consideration — The  Minds  of  the  Contracting  Parties  Must  Meet 
— A  Legal  Purpose  Necessary — Direct  and  Indirect  Placing  of  In- 
surance— Brokers — The  Insurance  Apphcation — Binders  and 
Inquiries — The  Policy — Rules  for  Construction — Usage — Mercan- 
tile Customs — Printed,  Written  and  Stamped  Words — The 
Intention  of  the  Parties.  Technical  Words — Extrinsic  Evidence — 
Does  the  Application  Control  the  Policy? — The  Law  of  the  Place — 
The  Cancellation  and  Modification  of  Contracts — The  Assignment 
of  Policies.  Certificates— Clarity  Essential  in  the  Writing  of 
Policies. 

CHAPTER  6 

The  Policy.     Assurer  and  Assured 108 

Types  of  Policies — Form  of  Policy — British  Form  of  PoUcy — The 
Assurer — The  Assured — Insurable  Interest  Must  be  an  Actual  One 
— Extent  of  the  Insurable  Interest — Persons  Who  Have  Insurable 
Interests — "For  Accoimt  of" — Attachment  of  Policy — Descrip- 
tion of  Insurable  Interest  Should  be  Definite — An  Insurable 
Interest  Must  Exist— Whom  It  May  Concern — "Whom  It  May 
Concern"  is  not  All  Inclusive — "Trading  With  the  Enemy"— The 
Payee  of  Loss — The  Insurance  Certificate  Transfers  the  Payment 


X  CONTENTS 

Page 
t)f  Ixjss — I/OSS  May  l)o  Mndc  I'ayaltlc  in  Foreign  Countries— Loss 
Orders— Open  or  Floating  Policies — Blanket  Policies — Advantages 
of  Blanket  Policies — Transit  Floaters. 

CHAPTER    7 

TnR  Policy  (Continued).     The  Termini 125 

Lost  or  Not  Lost — "Lost  or  Not  Lost"  a  Necessary  Condition — 
The  Termini — The  Subject  Matter  of  Insurance — Goods  Presumed 
to  be  Laden  Under  Deck — Some  Kinds  of  Property  Should  be  Spe- 
cifically Mentioned — The  \'cssel  and  Its  Master — The  Attach- 
ment of  the  Risk — Date  of  Attachment — The  Time  of  Attachment 
— Insured  Until  Safelj'  Landed — Warehouse  to  Warehouse  Clause 
— At  and  From — Attachment  of  Cargo  Insurance^Risk  After  Dis- 
charge from  Vessel — Attachment  of  Hull  Risks  on  Time — -Attach- 
ment of  Voyage  Risks  on  Hull — Policy  May  Terminate  by  Breach  of 
Contract — The  Doctrine  of  "No  Deviation" — The  Conduct  of  the 
Voyage — When  Does  Deviation  Occur? — The  Valuation — Deter- 
mination of  Value — Valued  Policies  in  Marine  Insurance  Justified 
— The  Basis  of  Valuation — Hull  Values. 

CHAPTER  8 

The  Policy  (Continued).     The  "Perils"  Clause 140 

Perils  Insured  Against — A  Formidable  List  of  Calamities — Doc- 
trine of  Pro.\imate  Cause — Losses  Which  are  Not  Covered  bj'  the 
Policy— Losses  Due  to  Fraud  or  Misconduct — Perils  of  the  Sea — 
Enumeration  of  Perils  of  the  Sea — Unavoidable  Accident  a  Peril 
of  the  Sea — Other  Perils  of  the  Sea — Fire — Fire  Protection — 
Jettison — Barratry — Lawless  Acts  and  War  Perils — Theft  and 
Pilferage — Pirates  and  Rovers — War  Perils — Men-of-war — 
Enemies — Letters  of  Mart  and  Countermart — Reprisals — Takings 
at  Sea.  Arrests — Restraints  and  Detainments — Ivings,  Prices 
or  People — All  Other  Perils — The  "Free  of  Capture"  Clause — 
Strikers  and  Locked  Out  Workmen  Clause — Modifying  Clauses. 

CHAPTER  9 

The  Policy  (Continued).     Sue  and  Labor  Clause 155 

Sue  and  Labor  Clause — Purpose  of  Sue  and  Labor  Clause — Applies 
to  Specific  Property  Insured — Assured  Must  Enforce  His  Rights 
Against  Third  Parties — The  Premium — Competition  Affects  Rates 
— Premium  Charged  on  Amount  Insured — Rates  of  Premiums 
Used  in  Great  Britain — Return  Premium — Proofs  and  Payment 
of  Loss — Proofs  of  Interest — Adjustment  of  Lo.ss — Average  Clauses. 
The  Franchise — Deductible  Average  Clauses — Purpose  of  Aver- 
age Clauses — Average  Clauses  Reduce  Cost  of  Insurance — Double 


CONTENTS  XI 

Page 

Insurance— Theory  of  Double  Insurance  Diffei'cnt  in  Great  Britain 
— Under  Insurance — Insurance  on  Same  Property  Covering 
Different  Risks — Carrier's  Liability — Illicit  or  Prohibited  Trade — 
Abandonment — Purpose  of  Abandonment  Clause — Liability  for 
Expenses — Liberty  to  Deviate  in  Event  of  Blockade — The  Attesta- 
tion Clause — Memorandum  Clause — Underwriter  Retains  Pre- 
mium on  Risk  Unwittingly  Insured  After  Arrival — Resume. 

CHAPTER  10 

The  Memorandum  Clause.     Implied  and  Expressed  Warranties. 

Representation  and  Concealment 170 

All  Goods  Not  Equally  Susceptible  to  Damage — A  Uniform  Rate 
of  Premium  Desirable — The  Memorandum  Clause — General  Aver- 
age Introduced  into  Marine  Policy — Excepted  Risks — The  Separa- 
tion of  Damaged  Goods — Insurance  Does  Not  Restore  Property — 
Implied  Warranty  of  Legal  Conduct — Seaworthiness — Tests  of 
Seaworthiness — No  Fixed  Standard  of  Seaworthiness— Seaworthi- 
ness Refers  to  Inception  of  Risk — Implied  Warranty  of  Seaworthi- 
ness not  Applicable  to  Hull  Time  Risks — The  Waiver  of  Warranty 
of  Seaworthiness — Implied  Warranty  of  Seaworthiness  Refers  to 
Vessel,  Not  to  Cargo — Proof  of  Breach  of  Warranty  of  Seaworthi- 
ness— Implied  Warranty  of  Prompt  Attachment  of  Risk — Delay 
Must  be  Unreasonable  to  Void  Contract — Other  Implied  Warranties 
— Breach  of  Warranty  May  be  Excused — Expressed  Warranties 
—Warranties  and  Stipulations — Expresses  Warranties  Usually 
Relate  to  Material  Conditions — Representation,  Misrepresen- 
tation and  Concealment — The  Avoidance  of  Contracts — Fraud — 
What  Must  be  Disclosed — The  Effect  of  a  Representation — Certain 
Facts  Need  Not  be  Disclosed— What  a  Representation  Implies — 
Fraud. 

CHAPTER  11 

Cargo  Insurance  as  an  Underwriting  Problem 186 

Basic  Form  of  Policy  Necessary — Cargo,  Hull  and  Freight  In- 
surance— General  and  Full  Cargoes — Under  and  on  Deck  Cargoes 
—A  General  Knowledge  of  All  Commodities  Essential — Marine 
Insurance  Conforms  to  Trade  Customs — Methods  of  Shipment 
IJontrolled  by  Physical  Environment — Knowledge  of  Trade 
Customs  Important — Racial  Characteristics  Affect  Marine  In- 
surance— Sale  of  Goods  at  Port  of  Refuge — Effect  of  Vessel  Types 
on  Cargo  Insurance — Vessel  Speed  an  Element  in  Cargo  Insurance 
— Structural  Design  in  Its  Relation  to  Cargo — Natural  Forces  as 
Related  to  Cargo  Insurance — Optional  Routes — Other  Elements 
in  Cargo  Insurance — Average  Conditions — Free  of  Particular 
Average — American  and  English  Average  Clauses  Contrasted — 


xii  CONTENTS 

Page 

The  lOlTcct  of  the  F.  V.  A.  E.  C.  Clause— F.  V.  A.  E.  C.  Clause 
musical — Amended  F.  P.  A.  E.  C.  Forms — Stranding  and  Sinking 
— Burning  and  ColHsion — Other  Casualties — Duration  of  Risk — 
Rate  of  Tremiuni  Based  on  Ordinary  Transit — Cargo  Clauses  are 
Numberless. 

CHAPTER  12 

Specific  Caroo  Risks 201 

Full  Cargo  Business — A  Seasonal  Business — Congestion  Hazard — 
Overloading  of  Vessels — Unfit  Vessels  Used  to  Carry  Full  Cargoes 
— Fire  Hazard — Classes  of  Cargo — Products  of  Agriculture — Sweat 
Damage.  Skimmings  Clause — Raw  Cotton — Schedule  Rating — 
Grain  Cargoes — Standard  Clauses — Hard  and  Soft  Grains — Vege- 
table Fibers — Raw  Sugar — Fruits  and  Vegetables — Products  of 
Animals — Canned  and  Bottled  Goods.  Dairy  Products — Re- 
frigerated Goods — Dressed  Meats — Livestock — Hides  and  Skins — 
Raw  Silk — Products  of  the  Forest — Wood  Cargoes — Products  of 
the  Mines — Coal  and  Ore — Products  of  Manufacturing— Diver- 
sity of  Risk — Machinery — Burlaps  and  Bags.  Fire  Hazard — Leak- 
age and  Breakage — Common  Carriers'  Insurance — Common 
Carriers'  Liability — Parcel  Post  and  Registered  Mail  Insurance — 
Securities  and  Currency. 

CHAPTER  13 

Hull  Insurance 2VJ 

Classes  of  Hull  Insurance — Single  Vessel  and  Fleet  Insurance — 
Single  Vessel  Risks — Fleet  Insurance — Moral  Hazard — The  Value 
of  a  Vessel — Valuation  Should  be  Reasonable — Trading  Warranties 
— Institute  Warranties — Loading  Warranties — Purpose  of  Warran- 
ties— Average  Clauses — Three  Percent  Average  Clause — Separate 
Valuations— Thirds  Off— Modified  "Thirds  Off"  Clauses— Ma-  - 
chinery  Claims — Collision  Liability — Legal  Expenses  in  Collision 
Cases — Club  Insurance — Protection  and  Indemnity  Clause — 
Cancellation  and  Lay-up  Return  Premiums — "And  Arrival" — 
Insurance — Port  Risk  Insurance. 

CHAPTER  14 

Special  Policy  Forms  for  the  Insura.vce  of  Hull-s 234 

Special  Hull  Forms — Work  of  the  Hull  Associations — Basis  of 
All  Policies  the  Same — Rates  of  Premium — The  A.  H.  U.  A. 
(1917  Form)— P.  P.  I.  and  F.  I.  A.  Interests— Purpose  of  the  Dis- 
bursements Warranty — Breach  of  Warranty  with  Respect  to  In- 
nocent Parties — Average  Clause — Sale  or  Transfer  of  Ownership — 
Contributor}'  Values — Effect  of  Breach  of  Cargo  and  Trade  War- 
ranties— Lake    Time    Clauses — Restrictiens   as   to    Navigation — 


CONTENTS  xiii 

Paoe 

Extension  of  Navigation  Limits — Winter  Mooring  Clause — 
Deductible  Average  Clause — ^Lay-up  Clause.  Change  of  Interest — 
Wooden  Sailing  Vessels — Wooden  Steamers — The  Internal  Com- 
bustion Engine — The  Auxiliary  Sailing  Vessel — Defects  in  Motive 
Power — A.  H.  U.  A.  Auxiliary  Sailing  Vessel  Form — The  Future 
of  Auxiliary  Vessels — Builder's  Risks — Special  Hazards  Insured 
Against — Risks  After  Launching — Underwriter  Guarantees  In- 
tegrity of  Material — Special  Clauses  and  Warranties — Return 
Premiums — Fertile  Field  for  Insurance. 

CHAPTER  15 

Freight  Insurance 251 

Freight  Insurance  a  Difficult  Subject — Meaning  of  Freight  in 
Marine  Insurance — Vessels  Built  to  Earn  Freight — When  is  Freight 
Earned? — Freight  "Pro-rata  Itineris  Peracti" — Prepaid  and  Guar- 
anteed Freight — Prepaid  Freight  Wrong  in  Principle — Interesting 
Underwriting  Problems — Charter  Parties — Charter  Money — Bill 
of  Lading  Freight — Delivery  of  Cargo  in  Specie — Collectible 
Freight  or  Freight  Contingency — Various  Freight  Interests  in  a 
Single  Venture — Freight  a  Contingent  Interest.  Dead  Freight — 
When  Does  Insurable  Interest  Commence? — Future  Freights — 
Anticipated  Freight — On  Board  or  Not  on  Board — Chartered  or  as 
if  Chartered — Termination  of  Risk — Amount  Insured — Duty 
Insurance — Premium  is  Due  Even  if  Duty  Not  Paid. 

CHAPTER  16 

War  Insurance 266 

War  Insurance  an  Important  Feature — Little  Knowledge  of  War 
Insurance — A  Great  War  Thought  to  be  Impossible — Perils  Judged 
by  International  Law — Principles  of  War  and  Marine  Insurance 
the  Same — Perils  Insured  Against — The  Declaration  of  London — 
Blockade  in  Time  of  War — Contraband  of  War — ^Absolute  Con- 
traband— Carriage  of  Contraband  Cause  for  Condemnation — Un- 
neutral Service — Destruction  of  Neutral  Prizes — Transfer  of 
Vessels.  Convoy — Right  of  Search — International  Law  Not 
Observed — Doctrine  of  Ultimate  Destination.  Preemption — Un- 
foreseen Perils — -Neutrality  Warranties — "Free  of  British  Cap- 
ture" Clauses — Trading  With  the  Enemy — Licenses — War  and 
Marine  Risks  Separately  Insured — Doubtful  Losses — Inter- 
mediate Liabilities.  Explosion  Hazard — New  War  Devices — 
Submarines  and  Commerce  Raiders — New  and  Unusual  Hazards — 
Airplanes^Government  War  Bureaus. 


\iv  rnXTFJNTS 

ciiAi''n:ij  17 

1'ai;e 

Hkinsurance 281 

The  Destruction  of  Large  Values — Reinsurance — The  Distrihution 
of  Risks — Growth  of  Reinsurance — Jumbo  Lines — Necessity  for 
Larf^e  Limits — Retained  Lines — Purpose  of  Reinsurance — Rein- 
surance Not  DilTercnt  in  Principle — Special  and  Floating  Rein- 
surance Contracts — Reinsurer  Bound  by  Acts  of  Reassured — 
Limitation  of  Liability — Share  or  Particii)ating  Reinsurance — 
Excess  Reinsurance — Effect  of  Determination  of  Excess  Amount 
— Division  of  Interest — Complications  at  Transhipping  Points — 
Prior  Losses  Under  Excess  Policies — ^Excess  Loss  Reinsurance — 
Speculative  Insurance — Shore  Reinsurance — Co-insurance — 
Special  Reinsurance  Risks.  Flat  Reinsurance — Reinsurance  Pools 
— Reinsurance  Subject  to  Original  Conditions — Reinsurance  at 
Original  Rates — Market  Conditions — Arbitrage — Reinsurance  of 
Unterininated  Risks — Reinsurance  of  Overdue  Vessels  and  \'essels 
in  Disaster — Reinsurance  Bordereau.  Concurrent  Reinsurance — 
Foreign  and  Domestic  Reinsurance — Original  Assured  Has  no  Claim 
on  Reinsurance. 

CHAPTER  IS 

Losses.     Introduction.     General  Average 297 

Losses  Beneficial  to  Marine  Insurance — The  Conduct  of  Loss 
Matters  Important — ^Insurance  Funds  Must  be  Conserved — Loss 
Adjusting  a  Profession — Specialization  in  Loss  Adjusting — 
General  Average — No  Reasonable  Substitute  for  General  Average 
Yet  Found — Definition  of  General  Average — The  General  Average 
Adjuster — Laws  of  General  Average  Not  Uniform — Elements 
Necessars'^  to  Valid  General  Average — The  Peril  and  the  Sacrifice — 
The  Preservation  of  Part  of  the  Venture — What  is  a  Voluntary  Sac- 
rifice?— The  General  Average  Adjustment — Contributory  \'alue  of 
Hull — Freight  Contribution — Contributory  Value  of  Cargo — 
General  Average  Cases  are  Often  Complicated — Statement  of  Both 
General  and  Particular  Average — York-Antwerp  Rules — Provi- 
sions for  York-Antwerp  Adjustments — Jettison  and  Fire — Cutting 
Away  Wreck.  Stranding — Injury  to  Engines  or  Sails — Thirds  Off. 
Separation  of  General  and  Particular  Average — Freight — Border- 
line Cases. 

CHAPTER  19 

Particular  Average 313 

Most  Claims  are  for  Partial  Loss — Particular  Average  Refers  to  a 
Special  Interest — Particular  Charges — Comparison  of  Gross 
Sound  and  Damaged  Values — Comparison  of  Gross  Values  Justified 
— Comparison  of  Net  Values  Unfair — Freight  and  Duty — Policy 


CONTENTS  XV 

Page 

Value  Controls — Determining  Depreciation  by  Appraisal — Salvage 
Losses — Certificate  of  Damage — Special  Adjustments — Effect  of 
Average  Clauses — Cause  of  Loss — Particular  Average  on  Profits 
and  Commissions — Particular  Average  on  Hull — Apportionment  of 
Expenses — Temporary  Repairs — Valuation  of  Hulls — Cause  of 
Damage  to  Hulls — Partial  Loss  of  Freight — Collectible  Freight — 
Substitution  of  Vessel  or  Cargo — Freight  Not  Always  Involved  in 
Damage  to  Ship  or  Cargo — Protest  of  Master — Proofs  of  Loss — 
Duplicate  Documents — Certificate  of  Enrollment. 

CHAPTER  20 

Total  and  Constructive  Total  Losses.     War  Losses 327 

Definition — Constructive  Total  Loss — Adjustment  May  be  Simple 
— Assured  Must  Endeavor  to  Preserve  Property — When  Is  a  Thing 
Lost? — When  Does  a  Constructive  Total  Loss  Occur? — American 
and  English  Practice  Differs — Abandonment — Tender  of  Abandon- 
ment— Validity  of  Abandonment — Tender  Must  be  Promptly 
Made — Acceptance  of  Abandonment — Effect  of  Acceptance — 
Abandonment  May  be  Deferred  by  Mutual  Consent — Assignment 
Dates  from  Time  of  Loss — Abandonment  of  Vessel  Involves 
Freight — No  Abandonment  if  Loss  Not  Due  to  Insured  Peril — 
Total  and  Constructive  Total  Loss  of  Vessel — Total  Loss  of  Cargo 
— Total  Loss  of  Freight — Proximate  Cause — War  Losses.  Missing 
Vessels — Presumption  of  Cause  of  Loss — Perplexing  Problems — 
Doubtful  Cases — The  Right  of  Subrogation— Salvage — Carrier's 
Liability — Carriers  Slow  to  Respond  for  Losses — Benefit  of  In- 
surance Clauses — Loan  Receipts. 


CHAPTER  21 

Brokers.     Mutual  Companies 342 

The  Business  of  Insurance — Brokers — Not  a  New  Factor — Brokers 
Indispensable — Occupies  an  Anomalous  Position — The  Broker 
Offers  Service — A  Trained  Expert — The  Broker  Knows  the  Market 
— Progressive  Underwriting — The  Broker's  Duty  Twofold — The 
Broker's  Attitude  Toward  Losses — The  Broker  Arranges  Settlement 
of  Losses — The  Broker's  Services  in  General  Average — Commis- 
sions— Broker  Does  Not  Guarantee  Payment  of  Premiums — The 
Broker  as  an  Underwriter — A  Difficult  Relation — Brokers  in 
England — Losses  and  Return  Premiums — Current  Accounts — 
Mutual  Companies — Theory  Sound  in  Principle — Method  of 
Organization — Distribution  of  Earnings.  Scrip  Certificates — 
Redemption  of  Scrip — Policy  Holders  Not  Subject  to  Assessment. 


xvi  CONTENTS 


ClIIATTKR  22 

Page 

Office  Okcanization.     Thk  Annual  Statement 35G 

Departmental  Orji;anizatioii — Purpose  of  Records — Organization 
Divided  into  Three  Sections — Underwriting  Department — In- 
spection Department — Binders — Line  or  Excess  Department — 
Customer's  Records — Certificate  and  Policy  Departments — 
Collection  Department — Participating  Companies— Loss  Depart- 
ment—Appraisers— Loss  Adjusters — Financial  Department — 
Cashier's  Department — Transfer  Department — Accounting  De- 
partment— Agency  Department — Statistical  Department — Marine 
Insurance  Not  an  Exact  Science — Preparation  of  Statistics — 
Deductions — Statistics  Must  be  Accurate — Annual  Statement — 
Income  and  Disbursements — Assets  and  Liabilities — Under- 
writing and  Investment  Exhibit — Schedules — Publicity  in 
Insurance. 


APPENDIX  A 

Standard  Application  Form  Used  in  Special  Risks  on  Cargo 370 

APPENDIX  B 

Standard    Form    Used    in  Requesting  Return   Premium,  Either 
Because  of  Cancellation  or  Reduction  of  Risk 372 

APPENDIX  C-1 
American  Hull  Underwriters  Association  Form,  1917 373 

APPENDIX  C-2 
American  Hull  Underwriters  Association  Form,  1918 377 

APPENDIX  C-3 
American  Hull  Underwriters  Association  Form  for  Builders  Risk  380 

APPENDIX  D 

Lake  Time  Clauses 382 

APPENDIX  E 
Marine  Insurance  Act,  1900 387 


CONTENTS  xvii 

APPENDIX  F 
Marine  Insurance  (Gambling  Policies)  Act  (1909) 415 

APPENDIX  G 
The  Harteu  Act 417 

APPENDIX  H 

York-Antwerp  Rules  of  1890 419 

APPENDIX  I 

Average  Bond 424 

APPENDIX  J 
General  Average  Guarantee   426 

Index , 427 


A  Selected  List  of  Reference  Books 

Frederick    Martix:  History    of    Lloyd's    and    Marine    Insurance    in 
Great  Britain. 

Gregory-Keller-Bishop:  Physical  and  Commercial  Geograph}'. 

Douglas  Owen:  Ocean  Trade  and  Shipping. 

Thomas  Walton:  Know  your  own  Ship. 

Franklin  Escher:  Elements  of  Foreign  Exchange. 

WiLLiARD  Phillips:  Treatise  on  the  Law  of  Insurance. 

Theophilis  Parsons:  Law  of  Marine  Insurance  and  General  Average. 

William  Gow:  Marine  Insurance. 

William  Gow  :  Sea  Insurance. 

Frederick  Templeman:  Marine  Insurance:  Its  Principles  and  Practice. 

George  Maitland  Lazarus:  A  Treatise  on  the  Law  relating  to  Insur- 
ance of  Freight. 

Thomas  Gilbert  Carver:  Carriage  by  Sea  (6th  Edition  by  James  S. 
Henderson). 

Ernest  W.  Congdon:  General  Average. 


MARINE  INSURANCE 


HISTORICAL  INTRODUCTION 

THE  HISTORY   OF  MARINE  INSURANCE,   ITS    ORIGIN, 
GROWTH  AND  PRESENT  STATE 

Origin  of  Marine  Insurance  Doubtful. — Marine  Insurance  is 
the  oldest  form  of  indemnity  of  which  there  is  any  record.  It 
is  known  to  have  been  practised  for  over  seven  hundred  years. 
^VIlen,  where  and  by  whom  it  was  first  devised,  however,  re- 
mains one  of  the  unanswered  questions  of  commercial  history. 
Several  nations  have  claimed  the  honor  of  having  invented 
this  system  of  indemnity,  but  the  best  evidence  indicates  that 
the  Jews,  at  the  time  of  their  banishment  from  France  in  the 
latter  part  of  the  twelfth  century,  introduced  such  a  scheme  of 
insurance  for  the  protection  of  their  property  during  its  removal 
from  France.  Villani,  a  fourteenth  century  historian,  is  the 
authority  for  this  theory,  stating  that  the  system  was  devised  in 
Lombardy  in  1182.  Whether  this  is  correct  or  not  is  of  little 
moment — the  fact  remains  that  early  in  the  development  of 
commercial  intercourse  the  need  arose  for  some  system  of  dis- 
tributing marine  losses,  and  the  present  method  of  insuring  came 
into  use. 

Ancient  Commercial  Activity. — In  order  to  obtain  a  proper 
perspective  of  marine  insurance,  it  is  important  to  trace  the 
development  of  commercial  intercourse  among  the  nations  of 
the  world.  That  the  seas  were  used  as  the  highways  of  trade 
early  in  the  history  of  man  is  evidenced  by  both  sacred  and 
profane  history.  In  the  Bible  there  are  many  references  to 
ships,  especially  to  the  ships  of  Tarshish  in  one  of  which  Jonah 
was  fleeing  from  Joppa  to  Tarshish  when  the  ship  was  overtaken 
by  a  mighty  tempest.  The  story  of  Jonah  is  interesting  in  this 
connection  in  that  there  appears  a  perfect  example  of  jettison, 

1 


2  MARINE  INSURANCE 

(tiic  of  \\\v  perils  covcrcMl  hy  the  present  iiiHriiie  iiisui'aiice  ])<>li('y, 
when,  on  account  of  danger,  tlu;  mariners  cast  forth  into  tlie 
sea  the  wares  that  were  in  the  ship  in  order  to  hj^litcn  it.  This 
experience  occurred  in  B.  C.  916,  about  the  time  that  the  Rhodi- 
ans  ol)tain(Ml  sovereifi;nty  of  the  sea. 

Early  Forms  of  Insurance. — The  Khodians  were  originall}^  an 
agricultural  people  but  early  in  their  history  turned  to  conmierce 
in  order  to  dispose  of  their  surplus  jiroducts.  They  were  har- 
assed by  their  neighbors,  who  continually  waged  war  upon  them, 
l)ut  by  B.  C.  916,  they  had  obtained  the  mastery  of  the  sea. 
About  this  time  they  promulgated  a  system  of  maritime  juris- 
prudence, which  has  become  the  basis  of  the  Roman  code  and 
of  all  modern  laws  relating  to  commerce  and  navigation.  Ko 
reference  to  insurance  is  found  in  this  system,  but  General 
Average  is  recognized  as  a  commercial  custom.  Bottomry  Bonds 
were  also  in  use  early  in  commercial  history,  and  a  word  of 
explanation  in  regard  to  these  two  forms  of  indirect  insurance 
will  be  of  interest. 

General  Average.— It  was  customary  in  the  early  days  for 
merchants  to  travel  with  their  wares  and  there  might  l)e  in  the 
same  ship  several  merchants,  each  journeying  with  his  goods 
in  order  to  sell  them  at  the  port  of  destination  and  there  buy 
other  goods  with  the  proceeds.  During  the  course  of  the  voyage 
let  it  be  supposed  that  a  severe  storm  arises  threatening  the  safety 
of  the  ship  and  making  necessary  the  casting  overboard  of  part 
of  the  cargo  in  order  to  lighten  the  vessel.  Naturally  a  dispute 
ensues  as  to  whose  goods  shall  be  sacrificed,  each  merchant  pre- 
ferring that  his  neighbor's  goods  and  not  his  own  ))e  cast  out. 
There  is,  however,  little  time  for  argument  when  a  ship  is  labor- 
ing in  a  storm  and,  to  prevent  such  disputes  and  to  effect  the 
saving  of  vessels  and  their  cargoes  without  having  all  the  loss 
fall  on  any  one  or  two  individuals  whose  cargo  could  most  easily 
be  jettisoned,  the  custom  arose  of  having  each  person  inteiested 
in  the  venture,  whether  shipowner  or  cargo  owner,  contribute 
to  make  good  the  loss  suffered  by  those  whose  property  was 
sacrificed.  This  custom  soon  obtained  the  force  of  law  and  is 
now  part  of  the  commercial  code  of  all  maritime  nations.  The 
word  average,  as  used  in  marine  insurance,  means  loss  or  damage, 
so  that  a  General  Average  is  a  loss  falling  generally  on  all  the 


HISTORICAL  INTRODUCTION  3 

interests  involved  in  a,  maritime  venture  as  distinguished 
from  Particular  Average  or  a  loss  falling  on  one  particular 
interest. 

Bottomry  Bonds. — In  the  early  days  of  commercial  history 
shipowners  and  cargo  owners  were  accustomed  to  borrow  monej' 
with  which  to  carry  on  their  ventures,  by  pledging  their  vessels 
or  their  cargoes  as  security  for  such  loans.  The  document 
setting  forth  the  terms  of  the  agreement  was  known  as  a  Bot- 
tomry Bond  when  the  vessel  was  pledged,  and  a  Respondentia 
Bond  when  the  cargo  was  hypothecated.  By  the  terms  of 
such  agreement  the  sum  named  in  the  bond  was  loaned,  subject 
to  the  condition  that  it  should  be  repaid  upon  the  arrival  of 
the  vessel  at  a  named  port.  If  the  vessel  was  lost  the  borrower 
was  discharged  from  his  obligation.  The  rate  of  interest  which 
such  bonds  carried  was  very  high,  since  the  lender  practically 
insured  the  property.  The  rate  of  interest  charged,  which  like 
the  principal  sum  was  payable  only  in  the  event  of  safe  arrival, 
included  compensation  not  only  for  the  use  of  the  money  loaned, 
but  also  for  the  possible  loss  of  the  money  itself  through  the 
failure  of  the  venture.  This  method  of  loaning  money  was 
really  the  reverse  of  our  present  system  of  marine  insurance. 
At  the  present  time  the  underwriter  charges  a  rate  of  premium 
on  an  amount  representing  the  fair  value  of  the  vessel  or  cargo, 
plus  the  insurance  premium  and  other  expenses,  which  amount 
he  agrees  to  pay  in  the  event  of  the  vessel  or  cargo  being  lost 
through  perils  insured  against. 

Forms  of  Bottomry  Bonds  Distinguished. — Under  the  bot- 
tomry bond  system  the  lender  in  effect  paid  for  the  property  at 
the  Ijcginning  of  the  venture,  the  borrower  repaying  the  amount 
loaned  plus  interest  (premium)  on  safe  arrival.  This  form  of  bot^ 
tomry  bond  which  represents  a  voluntary  pledge  of  property, 
must  be  distinguished  from  bonds  called  by  the  same  name,  which 
the  master  of  a  vessel  in  distress  must  make  when  all  other 
means  of  raising  funds,  to  effect  repairs  in  order  to  save  vessel 
and  cargo,  have  failed.  The  conditions  in  regard  to  the  re- 
payment of  the  amount  loaned,  plus  maritime  interest,  as  it  is 
called,  are  the  same  in  this  latter  form  of  bond  as  in  its  earlier 
prototype.  Under  present  mercantile  usage,  loans  on  vessels 
are  made  l)y  the  execution  of  a  })ond  secured  by  a  mortgage  on 


4  MAUI'S E  INSURANCE 

the  hull,  which  in  turn  is  protected  by  a  policy  of  insurance 
payable  to  the  lender. 

Grecian  Commerce  and  the  First  Insurance  Exchange. — 
Among  the  early  maritime  nations  are  found  the  Greeks  whose 
commerce,  while  extensive,  was  confined  largely  to  the  Euxine 
Sea,  especially  at  Corinth  and  Athens.  A  development  of 
interest  to  the  student  of  marine  insurance  is  an  Exchange  which 
the  Greeks  established  at  Athens  for  the  placing  of  bottomry 
l)onds.  In  a  very  interesting  monograph  on  "]\Iarine  Insurance 
in  Old  Greece,"^  Dr.  Benjamin  W.  Wells  describes  the  operation 
of  this  exchange  and  the  news  system  working  in  connection  with 
it.  The  ])ankers  and  merchants  operated  swift  dispatch  boats 
which  brought  early  news  of  wars  and  rumors  of  wars  and  of  the 
state  of  the  market,  so  that  vessels  could  be  diverted  to  safe  ports 
and  to  favorable  markets.  The  whole  scheme  seems  to  have 
been  a  forerunner  of  the  modern  Lloyd's,  London.  It  also  ap- 
pears that  human  nature  has  changed  little  since  the  days  of  the 
early  Greeks,  for  Dr.  "Wells  cites  numerous  cases  brought  into 
court  for  the  collection  of  money  loaned  on  bottomry,  where  it  is 
charged  by  the  lender  that  the  vessel  or  cargo  has  been  lost  under 
suspicious  circumstances.  It  is  quite  evident  from  the  argu- 
ments made  by  counsel  in  these  reported  cases  that  insurance 
by  bottomry  bond  was  an  established  and  essential  feature  of 
commercial  transactions  not  only  in  Ancient  Greece,  but  also  in 
the  other  maritime  nations. 

The  Carthaginians,  Phoenicians  and  Romans. — Early  in  the 
develo])ment  of  commerce  the  Garthaginians  and  the  Phoenicians 
exercised  a  potent  influence  in  the  markets  of  the  then  known 
world.  These  nations  later  fell  a  prey  to  Alexander,  who  de- 
stroyed their  cities  and  removed  their  commerce  to  Alexandria. 
But  Alexandria  too  passed  away  and  at  the  dawn  of  the  Christian 
era  Rome  held  sway  as  the  mistress  of  the  world.  Rome  is  re- 
membered, however,  not  for  her  commercial  progress,  but  rather 
for  her  military  achievements.  In  fact  it  was  the  policy  of  Rome 
to  discourage  mercantile  endeavor  as  being  harmful  to  the  state. 
The  commerce  of  the  Roman  Empire  consisted  largely  in  carrying 
supplies  and  provisions  for  her  armies  of  conquest.  Nevertheless, 
the  Roman  bankers  were  not  averse  to  investing  their  surplus 

'  Insurance  and  Commercial  Magazine,  March,  1918. 


HISTORICAL  INTRODUCTION  5 

funds  in  ])ott()niry  l)on(ls,  notwithstanding  the  fact  that  the 
loaning  of  money  at  interest  was  discouraged.  In  fact,  l)y  an 
edict  of  the  Roman  Emperor  Justinian,  dated  A.  D.  583,  a  rate 
for  such  loans  was  fixed  at  twelve  per  cent.  After  the  fall  of  the 
Roman  Empire  little  information  is  obtainable  for  many  cen- 
turies in  regard  to  the  development  of  commerce. 

Conimerce  in  the  Middle  Ages. — With  the  revival  of  commerce 
in  the  Middle  Ages  there  developed  two  centers  of  commercial 
activity,  the  one  in  the  Mediterranean  Sea,  the  other  in  the  Baltic 
Sea.  The  Venetians  and  Genoese  were  the  leaders  in  the  Medi- 
terranean, these  two  peoples  becoming  the  merchants  of  the 
world.  They  had  been  driven  down  from  their  homes  in  Central 
Europe  to  the  shores  and  adjacent  islands  of  Italy,  where  they 
were  able  not  only  to  defend  themselves  against  their  enemies, 
but  also  to  establish  an  overseas  commerce  that  covered  the 
whole  of  the  then  known  world.  The  Crusades  did  much  to 
increase  the  prosperity  of  these  peoples,  as  their  cities  made 
convenient  supply  stations  on  the  road  to  the  Holy  Land,  and 
they  were  not  slow  to  take  advantage  of  the  situation.  The 
returning  Crusaders  had  acquired  a  taste  for  the  products  of 
the  Eastern  nations,  and  the  Italian  merchants  imported  and 
distributed  these  goods  to  the  other  European  peoples. 

The  Hanseatic  League. — The  commercial  activity  in  the 
Baltic  Sea  was  also  controlled  by  peoples  who  had  been  driven 
out  of  Central  Europe  by  the  Barbarians,  but  had  fled  North 
and  established  various  centers  of  commerce  on  the  Baltic  and 
North  Seas.  As  a  measure  of  mutual  protection  these  several 
communities  perfected  an  organization  known  as  the  Hanseatic 
League,  which  undoubtedly  was  the  most  powerful  offensive  and 
defensive  commercial  alliance  which  the  world  has  ever  seen. 

The  First  Sea  Codes.-xin  the  ''Laws  of  Wisby,"  a  sea 
code  compiled  probal)ly  in  tihc  early  part  of  the  fourteenth 
century  for  the  government  of  the  Hanseatic  League,  reference 
is  made  to  Bottomry.  It  is,  however,  in  some  of  the  Collections 
of  Ordinances,  decreed  at  general  meetings  of  the  Hanseatic 
League,  that  regulations  are  promulgated  for  the  correction  of 
abuses  in  connection  with  the  issuance  of  Bottomry  Bonds. 
These  sea  codes  known  as  "Recessus  Hansse"  and  "Recessus 
Civitatum   Hanseaticarum"   indicate   that   at   this   period   the 


6  .v.iA7.\7';  fxscR.wd': 

practice  of  JioKoiury  was  still  an  iiiiijortant  part  of  inarilinic 
coiiuiicrcc. 

Early  Insurance  Rules. — Frederick  Martin  in  his  interesting 
work  on  "The  History  of  Lloyd's"  states  that  one  of  these  early 
"Recessi,"  issued  at  Liibeck,  where  most  of  the  meetings  of  the 
Hanscatic  League  were  held,  devotes  a  whole  chapter  to  the 
subject  of  Bottomry,  It  appears  from  this  record  that  insurance 
frauds  are  as  old  as  the  business  itself.  The  sixth  chapter  of  this 
"Keccssus"  states  that: 

"Whereas  there  occur  every  day  more  deceptions  as  regards  Bottomry, 
and  there  is  not  wanting  even  discovery  of  wicked  crimes,  it  is  ordered 
that  henceforth  masters  of  vessels  shall  have  no  power  to  raise  money 
on  Bottomry  at  the  place  where  the  freighters  reside,  in  order  that  the 
free  parts  of  the  ship  may  not  be  burthcned  with  charges  resting  on 
those  that  are  engaged.  And  in  case  masters  wish  to  raise  money  on 
Bottomry  on  parts  belonging  to  them,  it  must  be  with  the  knowledge 
of  the  freighters,  at  the  place  where  they  live,  and  only  to  the  extent 
of  their  interest.  Should  anybodj'  lend  more  than  this,  he  who  has 
advanced  the  money  shall  only  have  a  claim  on  the  master's  property 
and  not  on  the  ship,  and  the  master,  if  necessary,  shall  be  punished." 

Ill  another  paragraph  of  the  same  chapter  an  exception  is  made 
to  the  above  rule,  and  permission  is  granted  to  masters,  should 
they  meet  with  accidents  in  foreign  countries  and  have  no  goods 
to  sell,  to  pledge  the  vessel  to  raise  money  to  effect  repairs.  The 
amount  to  be  thus  raised,  however,  is  limited  to  the  sum  required 
to  make  such  necessary  repairs.  In  the  event  of  the  master  rais- 
ing money  in  foreign  countries  in  a  fraudulent  manner,  he  was 
held  answerable  not  only  with  his  property,  but  might  also  incur 
the  penalty  of  imprisonment  and  even  death. 

Modem  Marine  Insurance. — The  Hanseatic  codes  indicate, 
however,  that  bottomry  was  practised  more  in  the  sense  of  loans 
made  of  necessity  to  effect  the  preservation  of  the  venture,  and 
not  as  a  mere  insiu'ance  proposition.  Marine  Insurance  in  its 
direct  form  having  been  introduced  among  the  merchants  of  the 
^Mediterranean  Sea,  it  is  altogether  probable  that  it  was  adopted 
at  a  very  early  period  by  the  members  of  the  Hanseatic  League. 
The  Lombards  and  the  Hansa  merchants  controlled  the  commerce 
of  tlic  world.  The  Lombards  operated  as  far  north  as  Bruges, 
and  the   Hansa  merchants  controlled   commerce  from   Bruges 


HISTORICAL  INTRODUCTION  7 

north.  The  two  groups  of  merchants  traded  with  one  another 
and  as  will  api)ear  both  groups  had  their  share  in  the  development 
of  commercial  England. 

First  Use  of  Word  Insurance.^ — -There  is  an  old  historical  work 
called  the  "Chronyk  van  Vlaendern"  in  which  the  term  ws-?*?'- 
ance  in  the  modern  meaning  of  the  word  appears.  The  authen- 
ticity of  this  "Chronyk"  has  been  doubted,  but  Frederick  Martin 
in  his  work  cited  above  says,  ''if  there  is  no  evidence  that  has  come 
down  to  us — -in  its  favor,  neither  is  there  any  against  it."  The 
words  of  this  "Chronyk"  read  in  part  as  follows:  "On  the  demand 
of  the  Inhabitants  of  Bruges,  the  Count  of  Flanders  permitted 
in  the  year  1310,  the  establishment  in  this  Town  of  a  Chamber 
of  Assurance,  by  means  of  which  the  Merchants  could  insure 
their  Goods,  exposed  to  the  Risks  of  the  Sea,  or  elsewhere,  in 
paying  a  stipulated  Percentage."  Bruges  was  one  of  the  leading 
ports  of  the  Hanseatic  League,  where  much  of  the  trading  between 
the  Hansa  merchants  and  the  Lombards  took  place  and  it  is  not 
unreasonable  to  suppose  that  some  such  insurance  market  was 
there  established.  It  is  recorded  that  as  many  as  one  hundred 
and  fifty  vessels  would  arrive  at  Sluys,  the  outer  harbor  of  Bruges, 
on  a  single  tide.  Such  commercial  development  at  so  early  a 
period  in  maritime  history  seems  incredible. 

The  Age  of  Discovery. — Commercial  development  was  not  con- 
fined, however,  to  the  Lombards  and  to  the  Hansa  merchants, 
but  with  the  perfecting  of  a  practical  mariner's  compass,  other 
nations  rapidly  entered  the  overseas  trade.  The  "Age  of 
Discovery"  was  ushered  in.  Mariners  no  longer  needed  to  skirt 
the  shores  of  the  continents  or  dash  from  headland  to  headland, 
but  could  fearlessly  launch  out  into  the  deep  on  voyages  of  dis- 
covery and  conquest.  It  was  discovered  that  tlie  world  was 
round  and  not  square,  and  that  by  sailing  West  the  East  was 
reached.  The  taste  which  Europe  had  received  of  the  products 
of  the  East  had  developed  a  real  and  growing  demand  for  these 
commodities,  but  the  long  and  hazardous  overland  haul  from 
India  to  the  Eastern  shores  of  the  Mediterranean  led  to  the 
demand  for  a  quicker  and  less  expensive  route.  This  was  soon 
found  by  the  hardy  mariners  who  braved  the  terrors  of  the 
unknown  oceans  in  their  frail  vessels  and  opened  up  new  avenues 
of  commerce.     Soon  Spain,  Portugal,  France,  Holland  and  last. 


8  MAinxr:  ixsurance 

Itut,  nol  least,  Ei\fj;l:uul  entered  into  the  race  for  eomniercial 
picst  ijie  aiul  ('oloiiial  developnuMit. 

Rules  to  Prevent  Misuse  of  Insurance. — AN'itli  tiiis  rapid 
growth  in  overseas  connnerce  it  is  not  surprising  that  marine 
insurance  grew  into  a  definite  sj'sIcmu  of  indeiunit}'  and  that 
the  various  continental  nations  issu(Ml  ordinances  and  codes 
which  set  fort.ii  the  usages  and  customs  reflating  to  marine  in- 
surance and  laws  for  the  government  of  its  practi(;c.  'J'he 
earliest  of  these  codes  is  the  ordinance  issued  by  the  IMagistrates 
of  Barcelona  in  1435.  The  necessity  of  law  arises  because  men, 
uncontrolled,  take  advantage  of  their  weaker  fellows,  and  this 
first  code  relating  to  marine  insurance  is  no  exception  to  the 
rule,  for  it  is  largely  concerned  with  the  prevention  of  fraud  in 
connection  with  marine  underwriting.  Rules  are  included  in 
this  ordinance  limiting  the  amount  which  may  be  insured  on 
certain  vessels  and  prohibiting  altogether  the  insurance  of 
vessels  owned  and  freighted  by  foreigners.  The  code  also  pro- 
vides that  those  "who  write  policies  shall  be  bound  to  see  that 
they  are  properly  drawn"  and,  differing  from  modern  practice, 
requires  that  the  policy  must  be  signed  by  the  Assured  or  his 
representative,  "who  must  declare  on  oath  the  particulars  of  the 
insurance."  Wager  policies  were  prohibited  and  in  order  that 
the  premium  might  be  secured  to  the  underwriter  it  was  provided 
that  the  policy  was  of  no  effect  unless  the  premium  was  actually 
paid  and  acknowledged  in  the  contract.  On  the  other  hantl, 
the  underwriter  was  held  to  a  strict  compliance  with  his  contract, 
the  time  within  which  proved  losses  and  losses  arising  from  cases 
of  missing  vessels  must  be  paid  being  minutely  described. 

Insurance  Well  Established  in  Fifteenth  Century. — This  first 
ordinance  of  liai'celona  was  followed  ])y  others  issued  in  1436, 
in  1458  and  in  1461,  while  in  1468  the  Grand  Council  of  Venice 
issued  a  decree  in  regard  to  the  place  of  trial  for  actions  arising 
out  of  marine  insurance  disputes  and  a  somewhat  later  decree 
issued  in  Venice  deals  with  the  still  prevalent  custom  of  carrying 
unsafe  deckloads.  While  these  ordinances  and  similar  ones 
issued  in  Florence,  Bilbao  and  other  cities  are  of  exceeding 
interest  in  tracdng  the  growth  of  marine  insurance  customs  and 
practice,  they  are  also  of  great  importance  from  the  historical 
standpoint  as  indicating  very  clearly  that  by  the  fifteenth  cen- 


HISTORICAL  INTRODUCTION  9 

tury  marine  insurance  was  well  enough  established  to  require 
stringent  rules  governing  its  practice  and  to  prevent  its  abuse. 

The  "Guidon  de  la  Mer." — One  of  the  most  interesting  of  all 
the  early  works  on  marine  insurance  is  the  "Guidon  de  la  Mer," 
written  by  an  unknown  author  late  in  the  sixteenth  or  early  in  the 
seventeenth  century  and  apparently  published  in  Rouen,  France. 
This  work  gives  a  rather  complete  outline  of  the  rules  and 
conditions  under  which  marine  insurance  was  practised  at  this 
time.  It  appears  that  not  only  were  contracts  of  insurance 
required  to  be  in  writing,  but  it  was  necessary  to  have  such 
contracts  enrolled  as  public  acts  before  a  register  and  with- 
out such  registration  the  policies  were  null  and  void.  Cer- 
tain elaborate  rules  are  set  down  for  the  government  of  the 
register  or  greffier,  as  he  was  called.  Among  other  things  he  was 
required  to  collect  a  fixed  fee  for  his  services  and  to  keep  in  his 
office  a  collection  box  for  the  poor,  into  which  the  Assured  was 
ordered  to  drop  "six  deniers  for  every  thousand  of  livres  as- 
sured." Indications  appear  in  the  "Guidon"  that  at  the  time  of 
its  issuance  marine  insurance  was  generally  practised  in  all 
the  Continental  countries  and  in  England  and  that  policies 
made  in  one  countiy  were  payable  in  another  at  a  fixed  rate  of 
conversion  for  foreign  currency.  A  form  of  pohcy  also 
appears  in  the  "Guidon"  which  conforms  closely  to  the  earliest 
English  policy  dated  1613  and  found  in  the  Bodleian  Library 
at  Oxford. 

Marine  Insurance  in  England. — While  it  is  of  interest  to  trace 
the  growth  of  marine  insurance  in  Continental  Europe,  the 
American  student  is  more  deeply  interested  in  the  rise  and  growth 
of  insurance  in  England.  Our  system  conforms  more  closely  to 
the  system  common  in  England  where  marine  insurance  has 
reached  its  highest  development  than  to  that  of  the  Continental 
countries.  England,  the  last  of  the  European  countries  to  obtain 
prominence  as  a  commercial  nation,  has  now  outstripped  them  all 
and  is  the  mistress  of  the  seven  seas.  Two  streams  of  influence 
shaped  the  commercial  and  incidentally  the  marine  insurance 
development  of  England.  The  earliest  influence  was  that  of  the 
Hanseatic  League  which  for  nearly  five  centuries  controlled  to  a 
large  extent  the  foreign  commerce  of  England.  The  later  in- 
fluence was  that  of  the  Lombards,  who,  driven  out  of  their 


10  MAh'iM-:  i.\srh\\xci': 

lioiiu's  in  Italy,  settled  in  various  i)arts  of  Imitoik',  many  of  tlioni 
linding  refuge  in  ]"]nglan(l. 

The  Hansa  Merchants  and  the  Steelyard. — The  Hansa  nier- 
I'liants  found  in  iMighind  a  fciiile  field  for  the  practice  of  their 
efKcient  commercial  methods,  because  the  English  monarchs  in 
the  early  history  of  the  country  were  more  interested  in  fighting 
their  neighbors  and  in  defending  themselves  from  attacks  at 
home  and  abroad,  than  they  were  in  the  development  of  the 
country.  Incidentally,  these  English  kings  were  always  in  debt 
and  they  found  the  Hansa  merchants  accommodating  lenders  at 
fiisl,  but  severe  task  masters  at  last.  These  merchants  estab- 
lished themselves  in  London  in  what  was  known  as  the  Steelyard, 
a  group  of  buildings  in  which  they  lived  and  stored  their  mer- 
chandise. They  lived  under  the  strictest  discipline.  They 
neither  married  nor  were  they  permitted  to  associate  with  the 
gentler  sex.  They  were  connnercial  monks,  living  a  narrow  but 
a  luxuiious  life,  for  all  that  was  best  of  every  land  came  to 
their  hands.  Their  rules  and  regulations  were  not  only  for  the 
personal  government  of  the  members,  but  related  also  to  the 
commercial  and  political  affairs  of  the  organization.  They  en- 
tered England  in  the  tenth  century  and  three  hundred  years 
later  were  the  favorites  of  English  Royalty,  and  for  a  time  at 
least,  practically  controlled  the  trade  of  England.  But  such 
consideration  on  the  part  of  England's  kings  could  have  l)ut  one 
result.  The  first  signs  of  the  coming  commercial  superiority  of 
the  English  people  were  beginning  to  show  and  the  native  mer- 
chants rose  in  their  wrath  to  drive  out  these  Teutonic  tradesmen. 
The  men  of  the  Steelyard,  however,  were  deeply  entrenched  in 
the  commercial  life  of  England  and  it  was  only  after  a  bitter 
struggle  that  these  traders  were  finally  banished  and  the  won- 
dei'ful  era  of  commercial  progress  was  ushered  in  with  the  coming 
to  the  throne  of  Queen  Elizabeth.  DisHked  as  these  Hansa 
traders  were  by  the  English  merchants,  they  helped  in  largo 
measure  to  lay  the  foundations  of  that  overseas  trade  whicli  hiis' 
made  England  the  commercial  leader  of  the  world.  The  members 
of  the  Hansa  League  practised  marine  insurance  and  probably  in- 
troduced into  England  this  branch  of  commercial  activity. 

The  Lombards  in  England. — The  Lombards,  whose  impress  is 
deeply  marked  on  the  connnercial  history  of  England,  while 


HISTORICAL  INTRODUCTION  11 

engaging  to  a  certain  extent  in  overseas  commerce,  reached  their 
highest  success  as  money  lenders.  They  too,  having  funds  with 
which  to  finance  the  wars  of  England's  Kings,  found  great  favor 
with  them  and  received  many  privileges  not  accorded  to  the 
native  citizens.  The  first  great  wave  of  Lombard  traders  reached 
the  shores  of  England  about  the  middle  of  the  thirteenth  cen- 
tury and  as  their  power  and  wealth  increased  many  of  their 
fellows  from  Lombardy  and  other  places  on  the  Continent  joined 
them.  The  men  of  England,  however,  were  highly  incensed 
against  these  ''usurers."  In  order  to  satisfy  the  demands  of  the 
people  the  Kings  of  England  issued  many  edicts  for  the  control 
of  the  Lombard  bankers.  The  Kings  themselves,  nevertheless, 
continued  to  borrow  from  them,  regardless  of  the  fact  that  the 
rates  charged  on  their  loans  violated  their  own  decrees.  Not 
only  did  the  Lombards  become  money  lenders  to  Britain's  mon- 
archs,  but  they  also  were  the  fiscal  agents  of  the  Pope,  selling 
pardons  and  collecting  and  remitting  to  Rome  the  revenues  of 
the  Church. 

Lombard  Street. — Prospering  greatly  but  nevertheless  being 
persecuted  by  the  public,  the  Lombards  petitioned  King  Henry 
IV  to  grant  them  a  section  of  the  City  of  London  in  which  they 
might  build  their  homes  and  conduct  their  trade  in  security. 
The  King,  probably  in  return  for  some  financial  accommodation, 
granted  their  petition,  and  there  was  allotted  to  them  a  portion 
of  ground,  on  which  the  Lombards  built  their  homes  and  which 
took  the  name  of  Lombard  Street.  This  street  has  become 
famous  in  marine  insurance  history,  and  even  to  this  day  there 
appears  in  the  Lloyd's  form  of  policiy  this  clause: 

"And  it  is  agreed  by  us,  the  insurers,  that  this  wi'iting  or  policy  of 
assurance  shall  be  of  as  much  force  and  effect  as  the  surest  writing  or 
policy  of  assurance  heretofore  made  in  Lombard  Street,  or  in  the  Royal 
Exchange,  or  elsewhere  in  London." 

Departure  of  Hansa  Merchants  and  Lombards. — Little  in- 
formation is  obtainable  in  regard  to  the  commercial  and  insurance 
transactions  of  the  Lombards,  but  it  is  certain  that  with  the 
decline  in  power  of  the  Hansa  merchants  in  Europe,  the  Lombards 
gained  a  considerable  part  of  their  trade  and  at  the  close  of  the 
fifteenth  century  much  of  the  overseas  commerce  of  England  was 


12  MARINE  INSURANCE 

ill  their  conlrdl.  Tliis  is  evidenced  by  an  Act  of  Parliament  of 
1483  and  I)}'  subsequent  Acts  reciting  the  evil  pi-acitices  of  the 
Italian  merchants  and  endeavoring  to  curb  their  activities. 
With  the  coming  of  the  day  of  England's  commercial  awakening, 
the  Lombard's  ix)\ver  began  to  decline.  Gradually  the  Italian 
merchants  quitted  England,  some  returning  to  their  ancestral 
homes,  others  finding  new  fields  of  activity  in  the  Continental 
count  i-i(^s. 

Influence  of  Foreign  Merchants. — While  the  Hansa  merchants 
left  their  greatest  impress  on  the  bartering  side  of  trade,  the 
Lombards  firmly  established  in  England  the  banking  and  insur 
ance  branches  of  commercial  activity.  Marine  insurance 
introduced  into  England  by  the  Hansa  merchants  was  perfected 
by  the  Lombards,  and  at  the  time  of  their  passing  from  England 
the  practice  of  this  branch  of  mercantile  endeavor  was  well 
established. 

First  English  Marine  Insurance  Statute.— In  the  forty-third 
year  of  the  reign  of  Queen  Elizal)eth,  in  December,  IGOl,  four 
years  after  the  last  of  the  Hansa  merchants  had  left  England, 
there  was  passed  by  Parliament  "An  Acte  concerninge  matters 
of  Assurances  amongste  merchantes."  This  Act  stands  as  a 
landmark  in  the  history  of  marine  insurance,  not  because  the  law 
itself  had  any  very  great  influence  on  the  course  of  the  business, 
but  because  it  is  the  first  English  Statute  in  regard  to  marine 
insurance.  The  purpose  of  this  act  was  the  establishment  of 
a  special  court  for  the  trial  of  marine  insurance  cases  in  order  to 
expedite  their  adjudication.  The  court  although  regularly 
organized  was  little  used,  merchants  preferring  to  have  their 
cases  tried  in  the  regular  courts.  It  is  interesting  to  note  the 
preamble  of  this  statute,  which  reads  in  part  as  follows:  i.e., 

"Whereas  it  ever  hathe  bene  the  policie  of  this  realme  by  all  good 
meanes  to  comforte  and  encourage  the  merchante,  therebie  to  advance 
and  increase  the  general  wealthe  of  the  reahne,  her  majesties  customes 
and  strengthe  of  shippinge,  which  consideracion  is  nowe  the  more 
requisite  because  trade  and  traffique  is  not  at  this  presente  soe  open 
as  at  other  tymes  it  hathe  bene;  And  whereas  it  has  bene  tynie  out  of 
mynde  an  usage  amongste  merchantes,  both  of  this  realme  and  of 
forraine  nacyons,  when  they  make  any  great  adventure  (speciallie 
into  remote  partes)  to  give  some  consideracion  of  money   to  other 


HISTORICAL  INTRODUCTION  13 

persons  (which  commonlie  are  in  noe  small  number)  to  have  from  them 
assurance  made  of  their  goodes,  merchandizes,  ships  and  things  ad- 
ventured, or  some  parte  thereof,  at  suche  rates  and  in  such  sorte  as  the 
parties  assurers  and  the  parties  assured  can  agree,  which  course  of 
dealinge  is  commonlie  termed  a  policie  of  assurance;  by  means  of 
whiche  policie  of  assurance  it  comethe  to  passe  that  upon  the  losse  or 
perishinge  of  any  shippe  there  followethe  not  the  undoinge  of  any  man, 
but  the  losse  lightethe  rather  easilie  upon  many  than  heavilie  upon 
fewe,  and  rather  upon  them  that  adventure  not  than  those  that  doe 
adventure,  whereby  all  merchante,  speciallie  the  younger  sorte,  are 
allured  to  venture  more  willinglie  and  more  freely." 

In  a  later  part  of  this  Act  reference  is  made  to  causes  "arisinge 
out  of  pollicies  of  assurance,  suche  as  now  are  or  hereafter  shall 
be  entered  within  the  office  of  assurances  within  the  Citie  of 
London,"  indicating  that  the  Continental  system  of  officially 
recording  policies  was  followed  in  England. 

Individual  Underwriters. — At  this  time  underwriting  was  done 
by  individuals,  many  of  whom  were  bankers  or  money  lenders 
and  adopted  underwriting  as  an  additional  method  of  employing 
their  funds.  These  men  had  no  general  gathering  place,  but 
policies  were  carried  around  by  brokers,  who  obtained  from  each 
underwriter  his  acceptance  of  a  share  of  the  risk.  Each  individual 
noted  on  the  policy  the  amount  of  liability  which  he  assumed  and 
signed  his  name ;  hence  the  term  ■underwriter. 

Lloyd's  Coffee  House  and  Lloyd's  News. — The  introduction 
of  the  use  of  coffee  and  with  it  the  establishment  in  London  of 
cofTee  houses,  where  the  beverage  was  dispensed,  had  a  decided 
olTect  on  the  course  of  marine  insurance  in  England.  Notwith- 
standing an  ordinance  of  Charles  II  closing  the  coffee  houses  on 
the  ground  that  they  were  breeding  places  for  sedition  against 
the  government,  these  gathering  places  continued  to  prosper. 
Some  of  them  became  the  meeting  places  of  merchants  and  mari- 
ners where,  over  the  fragrant  cups  of  coffee,  the  latest  marine 
news  was  discussed.  One  of  these  houses  was  conducted  by 
Edward  Lloyd,  a  man  of  no  mean  ability  who,  seeing  that  this 
marine  gossip  might  be  of  general  interest,  began  in  1696,  the 
pubhcation  of  "Lloyd's  News."  This  small  sheet,  most  of  the 
numbers  of  which  are  to  be  fovmd  in  the  Bodleian  Library,  rep- 
resents the  germ  idea  from  which  has  grown  the  present  news 


II  MARINE  INSURANCE 

service  of  Lloyd's,  London.  After  tlu;  i)ul)li<';itiou  of  seventy- 
six  niinilx'rs,  the  fijoverninenl,  aiifi;erc(l  over  some  ilein  uppciiring 
in  the  "News"  stopped  its  publication.  Thirty  years  later  the 
paper  again  appears  as  Lloyd's  List  and  under  this  name  is  still 
I)ul)lislie(l. 

A  Meeting  Place  of  Underwriters. — Gradually  Edward 
Lloyd's  coffee  house  became  the  meeting  place  of  many  of 
London's  Underwriters  and  here  they  underwrote  their  risks. 
Not  only  was  underwriting  carried  on  in  this  coffee  house,  but 
ships  were  sold  and  merchandise  was  auctioned.  Merchants 
and  shippers  frequented  its  rooms  and  all  kinds  of  business  in- 
cidental to  shipping  was  transacted.  Advertisements  appearing 
in  papers  published  in  the  early  years  of  the  eighteenth  century 
constantly  refer  to  this  coffee  house  as  the  place  of  sale  of  ships, 
goods,  real  estate,  and  stocks,  and  as  the  meeting  place  of  the 
stockholders  of  associations.  Lloyd's  coffee  house  was  indeed 
the  mart  of  many  kinds  of  trade  and  the  story  of  its  evolution 
into  the  modern  London  Lloyd's  is  one  of  the  interesting  chapt(!rs 
in  commercial  history. 

Insurance  Companies  Organized. — In  a  day  when  the  English 
peoj)le  had  rim  wild  in  the  incorporation  of  companies  for  the 
doing  of  every  conceivable  thing,  at  a  time  when  the  South  Sea 
Bubble  was  expanding  but  had  not  yet  burst,  it  is  not  surprising 
that  the  field  of  marine  insurance  was  invaded  and  efforts  made 
to  do  corporation  underwriting.  Individual  underwriting  had 
by  this  time,  the  early  part  of  the  eighteenth  century,  brought 
fortunes  to  not  a  few.  The  s(;curity  for  the  insurance  was, 
however,  individual  security  and  it  did  appear  that  better  pro- 
tection could  be  given  by  a  corporation  with  a  definite  known 
capital  under  the  control  of  the  government.  Not  only  would 
this  better  security  be  given,  but  the  profits  arising  from  the 
conduct  of  the  business  would  be  distributed  to  many  persons, 
owners  of  the  stock  of  the  corporation.  The  underwriters  who 
congregated  at  Lloyd's  coffee  house  and  others  who  had  pri- 
vate offices  earnestly  opposed  the  establishment  of  a  chartered 
marine  insurance  company.  Many  arguments  pro  and  con  were 
advanced,  those  petitioning  for  the  incorporation  claiming  that 
many  individual  underwriters  failed  and  could  not  pay  their 
obligations,  a  charge  not  well  substantiated.     On  the  other  hand, 


HISTORICAL  INTRODUCTION  15 

underwriters  proved  that  the  business  could  be  better  carried 
on  b}^  individuals,  since  its  conduct  required  personal  skill  and 
experience  which  a  corporation  could  not  give.  They  also 
showed  that  underwriting  was  not  practised  on  the  Continent 
by  corporations  and  that  the  existing  system  had  adequately 
met  the  needs  of  England's  growing  commerce.  The  House 
of  Commons  sided  with  the  underwriters  and  the  project  died 
down  only  to  be  revived  in  1720,  when  a  new  and  always  powerful 
argument  was  presented  on  behalf  of  the  petitioners,  who  on  this 
occasion  sought  the  establishment  of  two  corporations.  The 
finances  of  England  were  in  an  embarrassing  condition,  owing  to 
the  civil  list  being  burdened  with  heavy  debts  which  Parliament 
was  unwilling  to  pay.  The  incorporators  therefore  skillfully 
proposed  that  in  exchange  for  the  granting  of  the  two  charters, 
including  a  monopoly  of  corporation  underwriting,  they  would 
pay  into  the  exchequer  for  the  discharge  of  debts  on  the  civil 
list  the  sum  of  £600,000.  This  proposal  struck  a  responsive 
chord  in  the  heart  of  King  George  I,  and  a  Royal  message  was 
sent  to  the  faithful  Commons  strongly  recommending  the  passage 
of  the  bill  granting  the  two  charters. 

The  Monopoly. — Notwithstanding  serious  opposition,  the  bill 
])ccame  a  law  and  charters  were  granted  on  June  24,  1720  to  the 
London  Assurance  Corporation  and  the  Royal  Exchange  Assur- 
ance Corporation.  These  two  companies  thus  received  the 
exclusive  right  and  monopoly  as  corporations,  of  insuring 
ships  and  their  cargoes.  The  fears  of  the  individual  under- 
writers that  their  business  would  be  ruined  proved  groundless. 
The  volume  of  business  obtained  by  the  corporations  was  small, 
and,  in  the  early  years  of  their  operation,  the  results  were  un- 
successful. By  a  saving  clause  in  the  bill  which  provided  for  the 
monopoly,  the  charters  were  subject  to  forfeiture  if  the  install- 
ments of  the  £600,000  payment  were  not  forthcoming  at  the 
dates  provided.  The  companies  failed  to  make  the  payments  as 
required,  but  owing  to  the  influence  of  their  sponsors,  Parliament 
reduced  the  debt  to  £150,000,  which  sum  was  ultimately  re- 
ceived by  the  Government. 

Growth  of  Marine  Insurance.  Lloyd's. — For  the  next  hundred 
years  during  which  the  two  corporations  made  a  slow  growth, 
the  business  of  the  individual  underwriters  increased  by  leaps 


ir.  MARINE  INSURANCE 

:iiul  houiuls.  Instead  of  hciii;:;  :i  liiii(li;iiic(;  !(>  these  under- 
writers, it,  was  soon  seen  that  ilic  nionojxtly  was  a  protection  to 
thcni  in  that  it  prevented  tlic  establishment  of  other  competing 
companies.  In  17G9  the  underwriters  who  congregated  at 
Lloj'd's  coffee  house  formed  a  definite  organization  and  ol)tain(>d 
the  control  of  Lloyd's  List.  One  object  of  the  organization 
was  to  stamp  out  the  gambling  which,  under  the  guise  of  insiu'- 
ancc,  was  being  carried  on  at  the  Coffee  House.  Such  insurances 
concerned  every  conceivable  subject  from  the  result  of  a  political 
election  to  the  probable  duration  of  the  life  of  a  prominent 
citizen  who  might  be  sick  and  dying.  The  underwriters  thus 
organized  under  the  name  of  "Lloyd's"  moved  to  the  Royal 
]v\(^hange,  the  idea  of  the  coffee  house  still  being  continued.  The 
control  of  this  particular  part  of  the  organization  was  vested 
in  a  head  waiter  and  his  two  associates,  who  cared  for  the  physical 
needs  of  the  members  "at  Lloyd's." 

Standard  Policy  Adopted. — From  this  time  on  Lloyd's  became 
the  underwriting  center  of  London.  Controlled  by  men  of 
great  ability  and  integrity,  resolutions  were  passed  condemning 
the  underwriting  of  gambling  policies.  These  resolutions  were 
observed  by  the  greater  portion  of  the  membership  and  Lloyd's 
gained  a  reputation  for  fair  dealing,  which  aided  not  a  little  in 
the  phenomenal  success  which  came  to  its  members.  In  1779 
at  a  meeting  of  Lloyd's,  a  uniform  printed  form  of  marine  in- 
surance policy  was  adopted  and  all  the  members  agreed  to  its 
use.  The  Resolutions  passed  by  Lloyd's  embod^-ing  this  form 
were  submitted  to  Parliament  and  were  approved  by  that  body. 
Lloyd's  form  thus  became  the  official  English  form  of  marine 
insurance  policy. 

Increase  of  Individual  Underwriters. — At  the  time  of  the  adop- 
tion of  this  form  of  policy  marine  insurance  was  increasing  greatly 
owing  to  the  American  War  which  made  overseas  conunerce 
extra  hazardous  and  led  many  to  insure  who  formerly  "ran  their 
own  risk."  This  war  and  those  which  followed  occupied  the 
attention  of  the  English  people  almost  continuously  for  a  period 
of  fifty  years.  During  this  time  England  developed  into  a  great 
nation  and  the  prosperity  which  came  to  the  country  was  not 
without  its  effect  on  the  underwriting  fraternity.  Wealth  made, 
not  without  great  hazard  but  in  large  volume,  attracted  many 


HISTORICAL  INTRODUCTION  17 

merchants  into  the  underwriting  field,  some  of  whom  would  stake 
tens  of  thousands  of  pounds  on  a  single  venture.  The  rates  of 
premium  charged  during  this  period  remind  one  of  those  which 
were  received  during  the  World  War.  History  has  also  repeated 
itself  in  that  there  were  in  both  cases,  certain  leaders  in  the  mar- 
ket who  established  rates,  others  relying  on  their  superior  judg- 
ment and  blindly  following  them. 

Efforts  to  Incorporate  New  Companies. — The  natural  conse- 
quence of  this  great  prosperity  was  the  desire  on  the  part  of  many 
to  enter  the  marine  insurance  field  as  corporation  underwriters, 
but  the  monopoly  created  in  1720,  proved  an  effective  barrier  to 
such  efforts.  The  two  corporations  and  the  underwriters  at 
Lloyd's  were  now  business  friends  and  no  longer  rivals  and 
jointly  resented  all  efforts  made  to  break  the  monopoly.  Business 
had  naturally  gravitated  to  Lloyd's  as  the  companies,  while 
engaging  to  some  extent  in  marine  insurance,  preferred  the  fields 
of  fire  and  life  insurance  with  their  surer  rewards.  The  original 
grant  of  monopoly  in  its  saving  clause  permitted  the  termination 
of  the  special  privilege  if  it  were  found  at  any  time  that  the 
monopoly  was  "hurtful  or  inconvenient  to  the  public."  Rely- 
ing on  this  phrase,  in  1798  the  directors  of  the  Globe  Insurance 
Company  who  wished  to  enter  their  company  in  the  marine  field 
petitioned  Parliament  for  a  repeal  of  the  monopoly,  but,  opposed 
by  the  power  of  Lloyd's,  the  petition  died  in  committee.  Making 
new  efforts  in  1806  and  1807  the  Globe  Company  was  again  de- 
feated and  ceased  from  its  efforts.  Again  in  1809  a  powerful 
group  of  men  petitioned  for  the  repeal  of  the  monopoly,  but  they 
too  were  unsuccessful.  This  time,  however,  the  question  was 
thoroughly  discussed  before  Parliament,  able  speakers  advocating, 
respectively,  both  the  repeal  and  the  retention  of  the  monopoly. 
From  the  debates  one  gains  a  very  clear  view  of  the  state  of  marine 
insurance  in  England  at  this  time  and  a  very  clear  presentation  of 
the  powerful  position  which  Lloyd's  had  assumed.  However, 
the  most  potent  argument  presented  by  the  opposition  in  the 
mind  of  the  House  of  Commons  was  that  the  repeal  of  the  mo- 
nopoly would  not  only  injure  Lloyd's,  but  would  probably  destroy 
the  "system  of  commercial  intelligence"  of  Lloyd's  which  was  not 
only  essential  to  marine  insurance  but  to  commerce  in  general. 
Frederick  Martin  in  his  history  gives  a  detailed  account  of  these 


IS  MARINE  INSURANCE 

(l('l)atcs,  together  with  pen  pictures  of  some  of  the  leading  figures 
in  the  marine  insuranc^e  world  at  that  time.  ])uring  tlie  investi- 
gations made  at  tiiis  time  by  the  special  conunittee  of  Parliament, 
much  evidence  was  presented  showing  that  insurance  frauds  were 
exceedingly  common  at  this  period.  This  was  largely  caused  by 
the  fact  that  the  i)unishmcnt  meted  out  to  such  offenders  was  not 
commensurate  with  the  gravity  of  the  offenses. 

Lloyd's  Reorganized. — The  efforts  made  to  defeat  the  repeal 
of  tlui  m()n(){)oly  brought  liome  to  the  members  of  Lloyd's  various 
defects  in  their  own  organization.  As  a  result  a  committee 
was  appointed  and  a  new  constitution  was  drawn  up  and  adopted 
providing  rules  for  the  admission  of  members,  their  government 
and  for  the  care  of  the  meeting  place  of  the  organization.  These 
rooms  were  still  operated  on  a  modified  plan  of  the  old  coffee 
house  idea.  The  control  of  the  organization  was  vested  in  a 
governing  committee  of  twelve,  who  were  charged  among  other 
things  with  the  duty  of  appointing  Lloyd's  Agents.  The  post 
of  Lloyd's  Agent  in  a  foreign  port  had  by  this  time  become  a  posi- 
tion of  honor,  much  sought  after,  and  men  of  the  highest  standing 
in  their  respective  communities  occupied  these  positions.  The 
work  of  these  agents  did  much  to  stamp  out  shipping  frauds 
and  the  wealth  of  commercial  information  gathered  from  their 
reports  was  of  immeasurable  value,  not  only  to  the  commercial 
world,  but  to  the  Government  as  well. 

The  Monopoly  Repealed. — The  insurance  monopoly  was  finally 
broken  on  the  24th  of  June,  1824.  The  circumstances  leading  up 
to  the  repeal  of  this  Act  (the  Gth  of  George  I)  are  not  without 
interest  and  show  how  slight  incidents  sometimes  have  great 
results.  Nathan  Rothschild,  son  of  the  great  German  banker, 
had  emigrated  to  England  and  there  became  a  commercial  and 
financial  power.  His  brother-in-law,  Benjamin  Gompertz,  a 
distinguished  mathematician,  sought  the  appointment  to  the 
vacant  post  of  actuary  of  a  large  insurance  company,  but  failed 
because  he  was  a  Jew.  He  appealed  to  the  powerful  Nathan, 
who,  infuriated  at  this  slight  to  his  religion,  vowed  that  he  would 
create  a  bigger  company  than  any  existing  and  provide  a  better 
position  for  his  relative  than  the  one  he  sought.  Immediately 
gathering  together  some  of  his  prominent  and  influential  friends, 
Rothschild  organized  the  "Alliance  British  &  Foreign  Fire  and 


HISTORICAL  INTRODUCTION  19 

Life  Assurance  Company"  with  a  capital  of  £5,000,000.  The 
shares  of  the  new  company  under  the  magic  of  the  Rothschild 
name  were  quickly  subscribed.  The  directors  then  petitioned 
parliament  for  the  repeal  of  the  marine  insurance  monopoly 
so  that  the  new  company  could  engage  in  this  branch  of  insurance. 
The  main  argument  advanced  for  the  repeal  of  the  old  Act  was 
that  competition  in  the  marine  insurance  field  might  be  free. 
The  opposition  argued  that  there  was  sufficient  competition,  there 
})eing  over  one  thousand  underwriters  at  Lloyd's,  and  that  the 
creation  of  this  gigantic  company  would  throttle  competition  and 
a  new  monopoly  would  be  created.  Nevertheless  the  repeal  of 
the  monopoly  was  approved,  but  Nathan  Rothschild  had  one 
further  bridge  to  cross.  The  prospectus  of  the  Alliance  Company 
only  providing  for  fire  and  life  insurance,  one  of  the  members  of 
Lloyd's,  who  had  purchased  fifteen  shares  in  the  new  company, 
commenced  suit  against  the  directors  to  restrain  them  from  enter- 
ing the  marine  insurance  field  as  a  breach  of  the  contract  entered 
into  between  the  directors  and  the  subscribers,  and  the  court  up- 
held this  view.  Nothing  daunted,  Nathan  Rothschild,  imme- 
diately organized  the  "Alliance  Marine  Insurance  Company," 
the  active  management  of  which  was  given  to  Benjamin 
Gompertz. 

New  Companies. — The.  fears  of  underwriters  at  Lloyd's  that 
company  competition  would  ruin  their  business  again  proved 
groundless.  The  public  was  slow  to  leave  the  old  paths  of 
marine  insurance  and  the  Alliance  Company  met  with  only 
moderate  success.  In  1840  finding  that  the  huge  capital  of 
five  million  pounds  was  unnecessary,  a  reduction  to  one  million 
was  made.  The  subsequent  history  of  marine  underwriting 
in  England  is  one  of  the  organization  of  many  companies  and  of 
the  failure  of  most  of  them.  However,  now  and  again,  records 
are  found  of  the  establishment  of  new  companies  which,  carefully 
organized  and  managed,  prosper  and  with  the  Alliance  still  aid 
in  caring  for  the  vast  values  which  enter  the  English  market 
seeking  protection. 

Marine  Insurance  Law. — No  history  of  marine  insurance  in 
England  would  be  complete  were  reference  not  made  to  the 
development  of  the  law  relating  to  this  branch  of  commercial 
activity.     The  Continental  nations  were  given  to  the  codifica- 


20  MARINE  Ii\srir\i\CE 

tioii  of  (licir  liiuis,  iiini,  ;is  ulr(>;i(ly  iiulicutod,  iiiaii}'  coiinncrcial 
codes  are  found.  The  English  lcM;al  mind,  however,  tended 
ratlier  to  draw  conclusions  from  precedents  than  to  bnid  itself 
l)y  any  definite  code  of  laws.  The  court  for  the  trial  of  insurance 
<'ases,  organized  in  the  reign  of  Queen  J'Jlizabeth,  never  achieved 
its  object.  Merchants  and  underwriters  pi-eferred  the  regular 
courts  of  law.  In  these  courts  the  judges  decided  cases  by  con- 
sidering the  Continental  codes  and  the  usages  of  merchants  in 
i']ngland  respecting  the  case  in  point,  drawing  their  conclusions 
and  leasing  their  judgments  on  these  precedents.  It  is  interest- 
ing to  note  that  up  to  the  middle  of  the  eighteenth  century 
there  appear  in  the  English  court  records  less  than  one  hundred 
cases  relating  to  insurance.  It  is  not  reasonable  to  presume,  in 
view  of  the  growth  of  marine  insurance,  that  this  is  any  indica- 
tion of  the  fact  that  disputes  did  not  arise  in  connection  with 
marine  insurance  transactions.  Rather  does  it  indicate  that 
merchants  were  not  satisfied  with  the  learning  of  ICnglish  jurists 
of  this  time  and  preferred  to  settle  disputes  out  of  court  by  arbi- 
tration or  by  some  other  method  of  reference  before  men  ex- 
perienced in  the  customs  of  commerce. 

Lord  Mansfield. — In  the  year  1756  there  ascended  the  bench 
as  Lord  Chief  Justice  of  England  the  Earl  of  Mansfield  and  for 
thirty-two  years  thereafter  he  molded  and  clarified  English 
law.  Of  broad  knowledge  and  of  keen  intellect  he  took  insurance 
law  as  he  found  it,  both  in  the  English  precedents  and  in  the  Con- 
tinental codes,  and  applied  it  in  the  light  of  commercial  customs 
and  usages  to  the  cases  presented  to  him,  and  developed  a  body 
of  law  which  is  today  the  basis  of  both  English  and  American 
practice.  Mr.  James  Allen  Park  in  1786  published,  with  the 
approval  of  Lord  Mansfield,  a  work  entitled  "A  System  of  the 
Law  of  Marine  Insurance,"  which  gathered  together  the  English 
decisions,  especially  those  of  Lord  JMansficld.  This  book  in 
which  the  decisions  are  divided  into  groups  relating  to  the  various 
branches  of  marine  insurance  law  is  still  a  work  of  great  value 
and  is  the  basis  of  many  of  the  English  and  American  law 
books  on  the  subject. 

The  Marine  Insurance  Act,  1906. — The  need  of  a  definite 
code  on  the  subject  of  marine  insurance  was  often  brought  to 
the  attention  of  Parliament  Avithout  any  degree  of  success.     As 


HISTORICAL  INTRODUCTION  21 

time  passed  and  the  decisions  grew  in  number,  inconsistencies 
crept  into  the  law  and  it  was  difficult  indeed  to  know  whether 
or  not  one  stood  on  firm  ground.  The  laws  which  Parliament 
did  pass  in  regard  to  marine  insurance  merely  sought  to  pre- 
vent gambhng  practices  or  related  to  stamp  taxes.  In  the  latter 
years  of  the  nineteenth  century  several  efforts  were  made  to 
pass  a  bill  codifying  the  English  Law,  and  for  twelve  years 
the  question  was  before  Parliament,  various  committees  con- 
sidering these  measures.  Finally  in  1906  the  Marine  Insurance 
Act  was  passed,  followed  in  1909  by  the  Marine  Insurance 
(Gambling  Policies)  Act.  These  two  acts  are  now  the 
controlling  law  of  England  with  respect  to  marine  insurance. 
The  Gambling  Policies  Act  has  quite  effectually  stamped 
out  the  dealing  in  wager  policies  which,  prior  to  the 
enactment  of  the  law,  were  engaged  in  by  all  classes  of  the 
English  people. 

Early  Underwriting  in  the  United  States. — The  history  of 
marine  insurance  in  the  United  States  is  rather  colorless.  Closely 
joined  to  England  by  ties  of  blood  and  of  custom,  it  is  not  sur- 
prising that  in  the  early  history  of  the  Colonies  insurance  on 
American  risks  was  placed  with  EngHsh  underwriters.  Early 
in  Colonial  days,  however,  some  effort  was  made  to  establish 
a  local  market.  In  1721  one  John  C.  Capson  inserted  in 
the  American  Weekly  Mercury  of  May  25th  published  in 
Philadelphia,  an  intimation  that  he  was  about  to  open  an 
office  of  public  insurance  on  vessels,  goods  and  merchandise. 
He  stated  that  "the  merchants  of  this  city  of  Philadelphia  and 
other  ports  have  been  obliged  to  send  to  London  for  such  insur- 
ance, which  has  not  only  been  tedious  and  troublesome,  but 
ever  precarious,  and  for  the  remedy  of  which  this  office  is  opened." 
Fom*  years  later  another  office  was  opened  in  the  same  city  by 
Francis  Rawle.  Of  the  success  of  these  offices  little  is  known, 
but  it  is  certain  that  for  many  years  thereafter  no  record  is  found 
of  any  attempt  to  establish  a  marine  insurance  office.  In  New 
York  City  an  insurance  office  was  opened  in  1759  and  in  1778 
we  find  the  New  Insurance  Office  entering  the  underwriting 
field.  All  of  these  offices  were  conducted  on  the  English  plan 
of  individual  or  partnership  underwriting,  incorporated  insurance 
companies  not  yet  entering  the  field. 


22  MAL'IXK  INSURANCE 

First  American  Insurance  Corporation. — In  1792  there  was 
orffHiii/ed  in  Pliiladt'lpliia,  then  tlie  commercial  metropolis  of 
the  new  United  States,  tiie  first  incorporated  company  for  the 
transaction  of  fire  and  marine  insurance,  the  Insurance  Company 
of  North  America  to  which  a  formal  charter  was  granted  on  April 
14,  1794,  by  the  General  Assembly  of  Pennsylvania.  The  early 
history  of  this  company  is  closely  interwoven  with  that  of  the 
nation  itself,  and  it  is  greatly  to  the  credit  of  the  management  of 
the  companj^  that  it  was  able  to  survive,  consideiing  the  wars  and 
rumors  of  wars  which  disturbed  the  early  years  of  the  American 
He[)ublic.  After  a  very  unsatisfactory  experience  with  private 
underwriters,  of  whom  at  least  fifty  operated  in  the  City  of 
Philadelphia,  merchants  welcomed  the  new  company  and  busi- 
ness flowed  to  it  in  a  constantly  increasing  stream. 

Corporation  Development. — The  corporate  system  being  ini- 
tiated, the  idea  spread  rapidly  and  soon  similar  organizations 
were  being  formed  in  New  York,  Boston,  Baltimore,  New  Haven, 
Charleston,  and  Newburyport.  These  and  other  companies 
soon  after  formed  met  with  a  reasonable  degree  of  success  for  a 
time,  owing  to  the  prosperity  which  attended  shipping  interests 
in  the  early  years  of  the  country's  history.  The  Napoleonic 
Wars  greatly  disturbed  the  peaceful  conduct  of  commerce  and 
caused  a  great  demand  for  insurance.  War  has  ever  been  a 
stimulant  to  the  marine  insurance  business,  bringing  as  it  does 
increased  hazards  and  correspondingly  increased  premiums. 
It  does  not  necessarily  follow,  however,  that  such  periods  are 
periods  of  prosperity  for  marine  underwriters,  and  these  early 
ware  with  their  consequent  heavy  losses  at  times  brought 
many  insurance  companies  to  the  verge  of  ruin.  During  the  first 
ten  years  of  the  existence  of  the  Insurance  Company  of  North 
America,  the  average  premium  rate  was  twelve  percent,  but  the 
payment  of  losses  absorbed  over  ninety-one  percent  of  the  pre- 
mium income.  Periods  of  partial  prosperity  followed  those  of 
adversity,  but  with  the  opening  of  the  war  of  1812,  the  marine 
market  again  faced  disaster.  The  shipping  of  the  United  States 
to  a  large  extent  being  driven  from  the  seas,  marine  insurance 
declined,  not  to  be  firmly  reestablished  for  thirty  years,  when 
with  the  growth  of  a  new  merchant  marine,  insurance  again  be- 
came a  profitable  employment  for  capital. 


HISTORICAL  INTRODUCTION  23 

Competition  Among  Companies  and  Failures. — The  liigli 
premiums  resulting  from  our  own  war  and  those  which  preceded 
it,  had  attracted  into  the  field  many  companies  which  met  with 
little  success.  The  dawn  of  peace  in  1815,  with  its  attendant 
loss  in  war  premium  income,  inaugurated  a  period  of  bitter 
competition.  The  volume  of  business  w^as  insufficient  to  employ 
the  capital  invested  and  in  the  endeavor  to  obtain  a  share,  com- 
panies wrote  risks  at  inadequate  rates,  with  the  inevitable  result 
that  many  of  them  failed.  Then  too,  those  who  were  managing 
the  companies  lacked  financial  insight  and  in  an  endeavor  to 
pay  dividends  neglected  the  creation  of  surplus  funds  to  aid  in 
this  day  of  disaster.  Lack  of  governmental  control  i^ermitted 
these  and  other  abuses  to  exist  and  grow.  This  thirty-year 
period  was  in  fact  a  testing  time  for  the  whole  country.  The 
new  nation  was  suffering  its  growing  pains  and  was  making  all 
the  mistakes  of  adolescence. 

The  Clipper  Ship  and  Insurance  Frauds. — The  merchant 
marine  had  been  gradually  reviving  and  shipowners  were  ob- 
taining a  new  measure  of  prosperity.  With  a  vkgin  country 
amply  supplied  with  woods  fit  for  shipbuilding,  it  was  but  natm-al 
that  from  the  earliest  days  the  people  should  turn  to  shipbuilding. 
Models  were  improved  as  time  went  on  and  finally  the  clipper 
ship,  the  glory  of  the  American  Merchant  Marine,  was  produced, 
and  won  from  the  ships  of  all  the  world  the  mastery  of  the  sea. 
The  renaissance  of  the  merchant  marine  preceded  by  some  years 
the  revival  of  profitable  underwriting.  Between  1828  and  1844 
the  companies  were  seriously  crippled  by  many  fraudulent  losses 
occurring  in  the  West  Indies  and  the  Gulf  of  Mexico.  Owing  to 
the  lack  of  cohesion  among  the  companies,  however,  it  was  not 
until  1844  that  any  concerted  action  was  taken  to  control  these 
losses.  In  this  year  the  Philadelphia  underwriters  formed  a  pro- 
tective organization,  one  of  the  main  purposes  of  which  was  the 
prevention  of  fraudulent  claims. 

Marine  Insurance  Revives. — Following  the  panic  of  1837  with 
its  attendant  failures,  those  companies  which  were  able  to 
weather  the  financial  storm  entered  on  an  era  of  prosperity  which 
continued  for  about  twenty  years.  The  American  clipper  ship 
was  now  developed  to  the  point  where  it  wrested  most  of  the 
overseas   carrying   trade  from   England   and   the    Continental 


21  ^f^h•INI^J  INSURANCE 

coiiiitric's.  The  sliips  and  their  cargoes  heiiiK  American  owned, 
it  was  but  natural  that  the  marine  insurance  should  be  placed 
with  American  underwriters.  New  companies  were  organized, 
many  of  them  meeting  with  phenomenal  success.  The  voyages 
of  the  clipper  ships,  while  short,  judged  by  standards  of  that 
time,  were  long  compared  with  steamer  voyages,  and  the  rates 
of  premium  accordingly  were  high.  So  well  built  were  these 
ships  and  so  skillful  were  their  masters  that  the  insurance  pro- 
duced a  handsome  profit  to  the  underwriters. 

The  Civil  War. — This  era  of  prosperity  was,  however,  short- 
lived. England,  somewhat  baffled  by  the  success  of  the  clipper 
ship,  sought  for  some  antidote,  and  found  it  in  iron  as  a  medium 
for  construction  and  in  coal  as  a  producer  of  motive  power. 
Soon  metal  ships  steam  propelletl  were  navigating  the  seas  and  the 
glory  of  the  clipper  ship  began  to  fade.  Slow  to  develop  her 
untold  resources  of  iron  and  coal,  the  United  States  began  to 
decline  as  an  overseas  carrying  nation.  Before  American  ship- 
builders realized  that  iron  and  coal  were  to  control  overseas 
commerce,  the  nation  was  engulfed  in  the  Civil  War,  which  added 
impetus  to  the  decline  of  the  American  Merchant  Marine  and 
carried  with  it  the  decline  of  most  of  the  insurance  comp'anies 
and  the  fall  of  many.  Burdened  by  heavy  taxation  and  deprived 
of  the  large  overseas  traffic  in  farm  products,  especially  cotton, 
American  shipping  and  its  allied  interests,  were  terribly  crippled. 
Great  Britain,  not  slow  to  grasp  her  opportunity,  entered  a  new 
era  of  shipbuilding  and  ship  operating.  Her  new  metal  vessels 
propelled  by  mechanical  power  were  soon  produced  in  great 
numbers  and  before  many  years  carried  much  of  the  overseas 
trade  of  the  United  States. 

Foreign  Companies  Enter  the  United  States. — Handicapped  by 
the  period  of  reconstruction  following  the  Civil  War  and  preju- 
diced by  the  attitude  of  foreign  classification  societies  which 
discriminated  against  American  built  vessels,  the  American 
merchant  marine  steadily  declined  and  with  it  the  fortunes  of  the 
marine  insurance  companies  which  had  survived  the  war.  To 
further  add  to  the  burdens  of  the  companies,  short-sighted  legis- 
lation permitted  the  entrance  of  foreign  insurance  companies 
into  the  American  market  on  terms  which  further  mihtated 
against   the   success   of   the   American    companies.     The   first 


HISTORICAL  INTRODUCTION  25 

British  Company  entered  New  York  state  about  1871,  quickly 
followed  by  many  others.  These  companies  had  been  organized 
for  many  years,  were  carefully  managed,  had  large  surpluses 
and  immediately  began  a  drive  for  American  business  by  cutting 
rates.  The  American  Companies  not  so  well  prepared  to  meet 
this  sort  of  competition  were  gradually  forced  out  of  the  marine 
business.  Some  were  liquidated,  others  which  did  both  a  fire  and 
a  marine  business  devoted  their  efforts  solely  to  fire  insurance. 
The  lesson  in  this  trying  period  of  marine  insurance  develop- 
ment in  the  United  States  has  not  yet  been  fully  learned.  Com- 
panies still  fail  to  maintain  adequate  surpluses  and  often  carry 
as  assets  doubtful  items  and  as  liabilities  amounts  much  too 
small  to  properly  care  for  unadjusted  losses.  Rigid  state  super- 
vision has  done  and  is  doing  much  to  correct  abuses  of  this  nature. 

Decline  of  American  Merchant  Marine. — When  this  period  of 
competition  had  passed,  the  American  market  was  composed  of  a 
very  few  American  companies  and  a  comparatively  large  number 
of  British  companies.  Much  of  the  cargo  business  to  and  from 
the  United  States  was  insured  in  the  American  market,  but  the 
hull  business  was  to  a  great  extent  placed  in  the  British  market 
and  British  underwriters  prescribed  the  form  of  policy  on  which 
such  insurance  was  written.  By  this  time  less  than  ten  percent 
of  the  overseas  commerce  of  the  United  States  was  carried  in 
American  vessels.  As  trade  follows  the  flag,  so,  too,  marine 
insurance  protection,  which  is  but  one  element  in  the  conduct  of 
trade,  is  ordinarily  furnished  by  citizens  of  the  same  flag,  with 
the  result  that  marine  insurance  was  diverted  from  the  American 
market. 

The  Marine  Insurance  Market  Broadens. — The  last  years  of 
the  nineteenth  century  ushered  in  a  new  era  in  the  history  of 
the  United  States.  Following  the  period  of  depression  com- 
mencing in  1893,  there  was  a  tremendous  revival  of  American 
trade.  After  the  Spanish-American  War  the  nation  found  itself 
a  World  Power  with  new  responsibilities  and  with  new  commercial 
fields  to  conquer.  The  coastwise  trade  of  the  United  States, 
wisely  restricted  to  American  vessels,  increased  greatly.  New 
vessels  were  built,  both  on  the  Seaboard  and  the  Great  Lakes. 
Gradually  the  American  marine  insurance  market  obtained 
a  larger  and  larger  share  in  this  hull  business  and  eventually 


L'(i  MARIM<:  IXSURANCE 

throuji;Ii  uiKhMwrifoi.s'  organizations  has  determinecl  rates  and 
conditions  for  the  con(hicl  of  (his  Itusiiiess,  wliich  (ho  liritish 
jnarkct  lias  followed. 

Little  American  Capital  Invested  in  Marine  Companies. — Not- 
withstanding the  gradual  control  which  the  American  market 
obtained  in  the  conduct  of  local  business,  it  must  not  be  forgotten 
that  the  larger  part  of  the  capital  employed  in  the  Atlantic, 
Lake  and  Pacific  marine  insurance  markets  was  foreign  capital 
and  the  profits  on  this  business,  in  large  part,  were  received 
not  by  American  investors,  but  foreign  shareholders  in  companies 
domiciled  in  this  country.  In  the  other  branches  of  insurance, 
although  foreign  companies  had  entered  the  field,  most  of  the 
capital  invested  was  American.  Profits  while  perhaps  small 
were  reasonably  certain  in  all  departments  of  insurance  except 
marine,  and  the  fair  profits  of  some  periods  were  not  sufficient 
inducement,  in  view  of  the  history  of  the  business,  to  attract 
American  capital  into  the  marine  field. 

Steady  Growth  of  Marine  Insurance. — Thus  a  giadual  growth 
and  strengthening  of  the  marine  market  appears  in  the  first 
thirteen  years  of  the  twentieth  century.  A  few  new  American 
companies  were  organized,  and  the  market  as  a  whole  reflected 
in  some  small  measure  the  prosperity  and  expansion  of  the 
United  States.  Stricter  regulation  by  the  State  Governments 
was  enforced,  but  no  effort  was  made  either  locally  or  nationally 
to  protect  American  companies  against  the  encroachment  of 
foreign  competition.  Neither  was  any  real  effort  made  to  foster 
American  shipping  by  governmental  aid.  On  the  other  hand, 
through  efforts  made  to  aid  seamen,  laws  were  passed  which 
succeeded  in  driving  most  of  the  American  vessels  in  the  foreign 
trade,  to  seek  registry  under  foreign  flags.  This  was  in  brief 
the  condition  which  existed  when  the  World  War  commenced. 

The  World  War  and  New  American  Companies. — Stunned 
by  the  outbreak  of  the  war,  all  commercial  activities  were  for  a 
time  disorganized,  but  gradually  recovering  poise,  the  need  for 
ships  and  for  American  insurance  became  insistent.  Bankers 
were  unwilling  in  many  cases  to  accept  the  insurance  certificates 
of  companies  of  belHgerent  countries  and  many  American 
companies,  formerly  confining  their  activities  to  fire  insurance, 
entered  the  marine  field.     New  companies  have  been  organized 


HISTORICAL  INTRODUCTION  27 

and  many  of  Scandinavian,  Spanish  and  other  neutral  nation- 
alities have  estabhshed  themselves  in  the  American  market. 
The  increased  value  of  tonnage  and  the  doubling  and  trebling  of 
cargo  values,  with  the  enormous  increase  in  the  rates  of  freight, 
have  created  a  demand  for  marine  insurance  which  at  times  has 
taxed  to  the  utmost  the  insurance  markets  of  the  whole  world. 
The  New  York  market,  where  before  the  war  about  thirty  com- 
panies were  actively  engaged,  now  boasts  over  one  hundred. 
Limits  of  a  few  hundred  thousand  dollars  formerly  exhausted 
the  capacity  of  this  market,  where  now  a  million  dollars  is  easily 
placed.  While  the  entrance  of  the  United  States  into  the  wai-, 
with  the  attendant  commandeering  of  ships  and  goods  depressed 
the  activity  of  the  marine  insurance  market,  the  extensive 
shipbuilding  program  of  the  country,  with  the  future  prospect 
of  an  American  Merchant  Marine,  representative  of  the  greatness 
of  the  United  States  as  a  commercial  power,  presages  a  golden 
future  for  the  practice  of  marine  insurance. 

The  Future  of  Marine  Insurance  in  the  United  States. — 
Whether  or  not  this  prospect  of  the  future  will  become  a  reality, 
depends  in  large  measure  on  the  wisdom  of  those  wlio  mold  our 
public  opinion  and  who  make  our  laws.  The  history  of  marine 
insurance  in  the  United  States  is  noted  for  the  paucity  of  laws 
interpreting  the  law  of  marine  insurance  and  for  the  control  of 
its  conduct.  An  insurance  code  drawn  up  as  part  of  a  suggested 
legal  code  for  the  State  of  New  York  failed  of  adoption  in  1865, 
but  forms  the  basis  of  the  insurance  law  of  California,  enacted 
in  1873.  Laws  affecting  insurance  are  in  force  in  most  of  the 
States,  but  they  are  more  regulatory  than  explanatory,  es- 
pecially in  theu'  reference  to  marine  insurance.  However,  the 
States  in  many  cases  have  not  been  slow  to  tax  marine  insurance 
companies  in  such  a  way  that  the  domestic  company  suffers  a 
disadvantage  over  the  foreign  company.  Then,  too,  American 
underwriting  is  handicapped  by  insurance  placed  with  foreign 
non-admitted  companies  which  enters  this  country  on  very 
advantageous  terms,  paying  only  a  small  tax.  If  marine  insur- 
ance, now  firmly  established  in  the  American  market,  is  to  retain 
its  prestige,  it  must  have  a  fair  competitive  field.  European  na- 
tions long  ago  realized  that  marine  insurance  was  one  of  the  hand- 
maids of  commerce  and  by  fostering  laws  have  strengthened  and 


28  l/.t/.'/.V/-;  INSUltANCJ'J 

ciicounigcd  iUs  ^rowlli.  Dealing  in  largo  pait  with  interstate 
and  international  commerce,  it  would  seem  natural  that  the 
control  of  this  branch  of  commerce  should  be  vested  in  the 
Fetleral  Government  rather  than  in  the  iState  Governments, 
which  often  times  working  at  cross  purposes,  interfere  with  the 
legitimate  growth  of  the  business  by  burdensome  taxation  and 
double  taxation.  The  same  result  could  be  accomplished,  per- 
haps, by  uniformity  of  state  laws  in  regard  to  marine  in- 
surance and  measures  looking  to  this  end  are  already  in 
contemplation  in  connection  with  the  National  Association  of 
Insurance  Conmiissioners.  Federal  laws  placing  American  com- 
f)anies  on  the  same  basis  as  foreign  companies  domiciled  here 
and  making  marine  insurance  entering  this  country  from  abroad 
through  the  mails,  subject  to  reciprocal  taxation  would  do 
nmch  to  establish  on  a  firm  foundation  a  business  which  is  as 
essential  to  the  gi'owth  of  our  commerce  as  is  the  building  of 
ships  and  the  strengthening  of  our  banking  facilities. 


CHAPTER  1 

PHYSICAL  GEOGRAPHY  IN  ITS  RELATION  TO 
MARINE  INSURANCE 

Effect  of  Natural  Conditions  on  Trade  Routes. — Marine 
insurance  having  been  originated  for  the  purpose  of  distributing 
losses  caused  by  the  physical  forces  of  nature  operating  on  and 
about  the  oceans,  it  would  seem  fitting  for  the  student  of  the 
subject  to  acquire  at  the  very  outset  some  general  knowledge 
of  these  elements.  Man  from  the  earhest  days  has  battled  with 
these  forces,  sometimes  going  down  to  defeat,  only  to  rise  again 
to  devise  some  new  method  of  conquering  them.  If  he  could  not 
overcome  these  adverse  conditions  of  nature  then  he  sought  means 
to  avoid  them  or  to  accommodate  himself  to  their  effects.  The 
earhest  trade  routes  were  overland,  following  the  paths  of  least 
resistance.  Thus,  if  there  were  hills,  or  lakes,  or  forests  interven- 
ing in  the  direct  path  of  his  journey,  primitive  man  would  avoid 
these  obstacles  by  going  round  them.  Man,  however,  differing 
from  the  beasts  of  the  field  in  being  a  thinking  animal,  soon 
began  to  create  rude  devices  for  overcoming  the  obstacles  in  his 
commercial  paths.  A  trail  would  be  cut  through  the  forest, 
a  rude  craft  would  be  built  to  cross  a  lake  or  river,  thus  avoiding 
the  necessity  of  encircling  these  barriers.  His  rude  craft,  how- 
ever, encountering  the  winds,  waves  and  currents  found  on  the 
lakes  and  rivers  soon  showed  its  defects  and  a  stronger  vessel  was 
built. 

Water  Routes. — Since  water  routes  offered  the  easiest  means 
of  communication  between  the  settlements  of  primitive  man,  it  is 
but  natural  that  he  should  have  discovered  means  of  navigating 
these  highways.  The  overcoming  of  the  simple  physical  forces 
operating  on  the  inland  waterways  was  a  comparatively  easy 
task,  and  the  natural  love  of  adventure  coupled  with  the  desire 
for  barter,  in  the  course  of  time  led  man  down  to  the  larger  seas 
and  finally  to  the  oceans  where  he  found  the  mighty  forces  of  the 
deep  aiding  him  in  their  periods  of  calm,  but  when  unleashed 
4  29 


30  MAh'IM':  IXSCRAXCE 

tlircutcniiip;  him  with  destruction.  Gradually  he  acquired  a 
knowledfre  of  these  jihysical  l)ani(!rs  which  liiiidered  tlie  un- 
restricted use  of  tlic  waterways,  but  not  having  developed  suffi- 
ciently to  devise  means  of  overcoming  them,  he  was  compelled  to 
skirt  along  the  shores  of  the  continents  in  his  rude  craft,  darting 
from  headland  to  headland  seeking  shelter  in  time  of  storm  and 
laying  to  at  night.  Often  to  avoid  treacherous  stretches  of 
water,  man  would  drag  his  rude  craft  overland,  or  tranship  his 
cai'go  over  a  neck  of  land  to  calmer  waters  beyond. 

Natural  Law  Discovered. — The  growth  of  commerce  createti 
the  desire  for  easier  and  safer  routes  of  travel,  and  men 
began  to  study  the  forces  of  the  universe  in  order  to  control 
them.  Certain  individuals  in  advance  of  their  generation  began 
to  discover  that  there  was  such  a  thing  as  law  in  nature  and  that 
these  natural  forces,  untamed  as  they  seemed  to  be,  were  but  the 
effects  of  the  sun  and  the  moon  and  the  stars.  They  discovered 
the  rudiments  of  astronomy  and  by  means  of  the  stars  were 
enabled  not  only  to  navigate  at  night,  but  to  navigate  during 
the  darkness  away  from  the  coast  hnes  and  over  the  broad 
expanses  of  inland  seas  such  as  the  Mediterranean.  It  was  also 
discovered  that  the  earth  instead  of  being  fiat  was  round  and 
there  were  mariners  courageous  enough  to  brave  the  terrors  of 
the  uid-cnowm  oceans  in  an  effort  to  prove  thai  by  sailing  AVest 
the  East  Indies,  the  fabled  land  of  the  ^Middle  Ages,  could  be 
reached. 

Ocean  Navigation. — Once  entering  the  mighty  expanses  of  the 
oceans,  the  hardy  mariners  discovered  that  the  ph3'sical  forces 
which  they  had  encountered  on  the  inland  seas,  were  magnified 
many  fold.  In  these  great  bodies  of  water  vast  flowing  streams 
were  found,  and  over  their  sm'face  were  belts  of  wind  and 
sections  of  calm.  Then  again  the  physical  forces  would  be  un- 
loosed and  the  surface  of  the  deep  would  become  a  raging  mael- 
strom in  which  they  would  be  all  but  engulfed.  The  faith  of 
these  pioneers  being  vindicated  by  the  discovery  of  America 
and  of  the  ocean  routes  to  the  East  Indies  the  overcoming  or 
circumventing  of  these  physical  forces  became  increasingly  neces- 
sary, if  man  was  to  obtain  the  full  use  and  enjoyment  of  his 
world.  Gradually  gaining  knowledge  by  experience,  in  time, 
the  laws  governing  the  action  of  these  forces  of  nature  have  been 


PHYSICAL  GEOGRAPHY  31 

determined  and  their  effects  discovered.  By  applying  this  knowl- 
edge to  navigation,  types  of  vessels  have  been  developed  able  to 
resist  the  action  of  these  forces.  As  the  localities  and  times  of 
greatest  danger  became  known,  these  were  avoided.  Not  only 
has  this  been  done,  but  man  has  gone  further  and  has  adopted 
these  forces  for  his  own  use  and  has  laid  out  his  water  routes 
over  those  portions  of  the  oceans  where  he  can  be  aided  by  the 
winds  and  the  currents. 

Aids  to  Navigation. — With  the  development  of  commerce  and 
the  establishment  of  more  stable  political  control,  governments 
have  lent  their  aid  in  charting  the  oceans,  in  establishing  light 
houses  on  dangerous  coasts  and  in  providing  a  weather  service 
which  warns  mariners  of  impending  storms.  Scientific  societies 
by  many  devices  and  by  especially  designed  and  equipped  ships 
have  added  greatly  to  the  store  of  knowledge  in  regard  to  the 
ocean  and  much  has  been  done  to  aid  in  the  safety  and  certainty 
of  ocean  navigation.  Great  as  has  been  the  progress  much  re- 
mains yet  to  be  done.  The  knowledge  now  attained  and  the 
progress  already  made  in  ocean  navigation  merely  encourage 
further  research  in  an  effort  to  better  comprehend  the  workings 
of  nature  and  to  overcome  or  to  turn  to  the  use  of  man  the 
powerful  forces  which  nature  has  let  loose  on  the  broad  expanse 
of  the  ocean. 

Effect  of  the  Oceans  on  Climate. — That  the  task  is  a  stupen- 
dous one,  may  be  appreciated  if  thought  is  given  to  the  vast- 
ness  of  the  oceans,  and  to  the  distances  covered  in  the  negotia- 
tion of  the  ordinary  routes  of  commerce.  Seventy-two  per- 
cent of  the  earth's  surface  is  covered  by  water  ranging  in  depth 
from  a  fraction  of  an  inch  to  six  miles  and  stretching  from  the 
equator  to  the  poles.  This  enormous  expanse  of  water  with 
its  tides  and  currents,  its  winds  and  storms  not  only  separates 
the  land  masses  but  also  determines  to  a  large  degree  their 
climates  and  to  a  very  great  extent  has  influenced  man's  de- 
velopment. This  may  readily  be  seen  by  comparing  land  masses 
in  the  same  latitudes.  The  British  Isles  bathed  by  the  warm 
waters  of  the  Gulf  Stream  are  a  veritable  garden  while  in  the 
same  latitude,  Labrador,  whose  coasts  are  washed  by  the  Arctic 
current,  is  a  frozen  waste.  Not  only  is  climate  affected,  but 
the  variation  of  temperature  is  controlled  by  the  oceans,  making 


32  MAli'IXE  IXSf'RAXCE 

life  more  enjoyable.  In  far  inland  sections  very  wide  daily  and 
annual  ranges  of  temperature  occur,  while  in  the  vicinity  of 
the  oceans  the  slow  heating  and  cooling  water  exercises  a  con- 
trolling influence  on  the  temperature. 

Ocean  Distances  are  Great. — The  distances  over  the  routes 
of  commerce  i)ctweon  the  various  centers  of  human  endeavorj 
following  as  they  do  the  lines  of  least  resistance,  are  very  great. 
From  Liverpool  to  New  York  is  about  .3000  miles  while  the  dis- 
tance from  New  York  to  the  River  Plate  is  5700  miles.  Again 
from  New  York  to  Sydney,  Australia  is  13,000  miles  when  the 
Cape  route  is  used  and  9700  miles  if  the  shorter  Panama  Canal 
course  is  followed.  A  steamer  traveling  from  Seattle  to  Yoko- 
hama covers  4250  miles,  and  another  1725  miles  is  traversed  if 
it  continues  on  to  Manila.  Even  the  distances  of  inland  waters 
are  not  often  appreciated,  the  distance  from  Duluth,  Minn,  to 
the  mouth  of  the  St.  Lawrence  being  about  1675  miles,  and  from 
the  head  of  navigation  on  the  Mississippi  to  the  Gulf  of  Mexico 
2150  miles.  From  New  York  to  Iquitos,  Peru,  on  the  Amazon 
River  is  6000  miles  and  2400  miles  must  be  covered  in  sailing 
from  Seattle  to  Nome,  Alaska. 

The  Physical  Force  of  Nature. — It  is  with  the  physical  forces 
of  nature,  however,  that  marine  insurance  is  concerned.  Were 
the  waters  always  calm,  were  there  no  fogs  or  currents,  there 
would  be  little  need  for  insurance  except  against  fire  and  man's 
own  acts  resulting  in  collisions  and  war  perils.  But  with  the 
possibility  of  nature  letting  loose  her  weapons  at  any  thne  some 
means  of  indemnity  against  the  destruction  caused  by  her  forces 
is  necessary.  A  description  of  these  forces  will  give  an  indica- 
tion of  the  problems  with  which  a  marine  underwriter  is 
confronted. 

The  Wind  and  Storms. — Fii'st  may  be  considered  the  wind. 
The  atmosphere  is  ever  in  motion  and  man  has  learned  to  use 
this  movement  for  the  propulsion  of  his  craft.  In  the  earUest 
times  he  devised  a  rude  form  of  sail  to  aid  the  oarsman  in  the 
movement  of  his  vessels,  but  soon  wind  power  displaced  man 
power.  Atmospheric  conditions,  however,  control  the  velocity 
of  the  wind  and  when  conditions  are  ripe  storms  break  forth 
under  which  the  sturdiest  ships  may  succumb,  or  they  may 
be  wrecked  or  driven  on  dangerous  coasts  through  the  effects 


PHYSICAL  UKOGRAl'lIY  33 

of  these  storms.  While  there  are  storms  which  are  sporadic, 
there  are  other  storms  which  are  periodic.  These  periodic 
storms  occur  most  frequently  in  the  Tropics,  those  in  the  Atlantic 
Ocean  being  called  hurricanes  while  those  in  the  Pacific  Ocean 
are  called  typhoons  and  in  the  Indian  Ocean  monsoons.  There 
are  belts  of  wind  known  as  the  Trade  Winds  which  blow  con- 
stantly at  a  velocity  of  from  ten  to  thirty  miles  an  hour,  and  are 
found  between  28°  north  and  28°  south  of  the  equator.  These 
winds  blow  from  the  northeast  in  the  northern  hemisphere  and 
from  the  southeast  in  the  southern  hemisphere.  North  and 
south  of  the  Trade  Winds  are  other  belts  of  wind  known  as  the 
Westerlies.  These  winds  in  the  Southern  Hemisphere  are  fairly 
constant  between  latitude  40°  and  50°  South  blowing  from  the 
southwest  and  are  known  to  sailors  as  the  "Roaring  Forties." 
It  is  interesting  to  note  in  this  connection  as  showing  the  effect 
of  winds  on  ocean  trade  routes,  that  a  sailing  vessel  in  going  from 
New  York  to  Sydney,  Australia,  sails  southeast  until  the  island 
of  Tristan  da  Cunha  is  reached  in  latitude  37°  South  and  then 
taking  advantage  of  the  short  lines  of  latitude  and  of  the  power 
of  the  "brave  west  winds,"  the  Roaring  Forties,  runs  before  the 
wind.  If  the  destination  is  Bombay  instead  of  Sydney  the  vessel 
will  turn  north  at  about  longitude  80°  East  and  taking  advantage 
of  the  Monsoons,  seasonal  winds  of  the  Indian  Ocean,  speed  north. 
In  the  Northern  Hemisphere  the  westerly  winds  are  not  constant, 
and  i^roduce  the  exceedingly  severe  storms  encountered  in  the 
North  Atlantic.  The  causes  of  these  winds  are  many  and  these 
belts  of  wind  move  north  and  south  with  the  changing  seasons. 
In  between  these  wind  belts  are  areas  of  calm,  the  doldroms, 
which  also  move  with  the  seasons,  and  it  is  in  these  sections  of 
calm  at  the  seasonal  changes  that  the  hurricanes  and  typhoons 
originate.  These  storms  which  last  at  times  for  weeks  are  of 
such  severity  that  only  the  staunchest  ships  can  outride  them. 

Effect  of  Wind  on  Ocean  Routes. — Wliile  the  wind  in  the  daj^s 
of  sailing  vessels  was  the  all  important  factor  in  determining  the 
routes  of  commerce,  it  is  only  to  a  slightly  less  extent  considered 
today  in  the  laying  out  of  steamship  courses.  The  amount  of 
resistance  offered  to  wind  pressure  by  a  gigantic  steamship  is 
great  and  if  this  resistance  can  be  avoided  in  the  case  of  head 
winds  or  availed  of  in  the  event  of  following  winds,  fuel  consump- 


34  MAHISE  INSVRASVE 

(ioM  will  be  reduced  and  an  economic  gain  result,  provided  the 
distance  between  ports  is  not  materially  increased.  Accordingly 
in  looking  at  a  map  upon  whicli  are  impressed  the  steamship 
routes  the  prevailing  winds  will  l)e  found  to  have  been  con- 
sidered, as  well  as  the  ocean  currents,  of  which  mention  will  be 
made.  In  the  North  Atlantic  for  instance  will  be  seen  summer  and 
winter  tracks  for  steamers  plying  between  New  York  and  Liver- 
pool. These  courses  have  been  determined  to  some  extent  by 
the  prevalence  of  ice  at  certain  seasons,  but  to  a  greater  degree 
are  the  result  of  sailing  vessel  experience  in  choosing  the 
most  accommodating  routes.  The  voyage  across  the  Atlantic 
from  New  York  to  the  United  Kingtlom,  owing  to  the 
prevailing  Westerly  Winds  and  to  the  current  of  the  Gulf 
Stream,  is  a  much  safer  trip  than  the  return  passage,  where  the 
resistance  of  both  these  forces  is  encountered.  For  this  reason 
it  was  said  by  sailors  in  the  daj^s  of  the  sailing  vessel  that  it  was 
"down  hill  to  Europe." 

Wave  Force. — One  of  the  most  powerful  of  the  physical  forces 
of  nature  is  the  wave.  Caused  principally  by  the  wind  and  the 
tide  this  movement  of  the  surface  water  exerts  a  power  that  is 
l)eyond  measurement.  Upon  this  force  to  considerable  extent, 
depends  the  location  of  harbors.  Many  otherwise  commodious 
havens  have  been  rendered  useless  bj^  w'ave  action,  and  otheis 
have  been  saved  only  by  the  building  of  breakwaters  or  other 
devices,  which  curbed  this  natural  force.  It  will  also  appear  in 
the  consideration  of  ships  and  shipbuilding  that  wave  force  is 
and  has  been  one  of  prime  consideration  in  the  designing  and 
construction  of  ships.  While  the  appearance  of  the  wave  from 
the  shore  or  from  the  deck  of  a  vessel  indicates  that  a  great  body 
of  water  is  rapidly  approaching,  this  is  not  the  case.  Were  the 
appearance  a  reality  ocean  navigation  would  be  almost  impos- 
sible as  the  wave  would  be  a  current  against  which  a  vessel  could 
not  sail.  On  the  contrary  vessels  ride  the  waves,  the  movement 
continuing  under  and  beyond  the  vessel  causing  some  retardation 
of  the  vessel's  progress,  but  under  ordinary  conditions  offering 
no  serious  hindrance  to  navigation.  It  is  only  when  waves  attain 
great  size,  speed,  and  height  that  they  are  a  menace  to  naviga- 
tion. Then  unless  a  vessel  is  skillfully  navigated  to  meet  the 
onrushing  waves  serious  results  will  ensue. 


PHYSTCAL  GEOCRAPUY  35 

The  Power  of  Waves. — When  it  is  considered  that  in  severe 
storms  waves  attain  a  length  of  1000  feet,  a  height  of  forty  feet 
and  move  forward  at  the  rate  of  60  miles  an  hour  some  idea  of 
their  power  is  obtained.  Waves  have  been  described  as  a 
"transference  of  form  not  of  substance."  This  is  an  accurate 
description.  Wave  motion  may  be  likened  to  a  movement  of  a 
field  of  grain  in  the  wind.  There  is  an  appearance  of  wave 
motion,  the  heads  of  grain  seem  to  move  across  the  field  but  in 
reality  merely  crowd  together,  bend  down  and  regain  their 
upright  position.  So  an  examination  of  water  movement  shows 
that  the  particles  of  water  move  in  orbits ;  each  individual  particle 
starts  forward,  rises,  retreats,  and  falls,  completing  its  orbit 
during  the  passage  of  a  single  wave.^  The  real  menace  in  wave 
motion  is  when  the  movement  is  interrupted.  When  a  wave 
strikes  a  ship  and  breaks  over  it,  the  weight  of  water  falling  on 
the  vessel  is  measured  in  tons  and  unless  the  decks  are  properly 
constructed  to  quickly  throw  off  this  burden  of  water  the  vessel 
may  sink.  Many  times  a  wave  breaking  against  the  ship  will 
carry  away  its  upperworks,  admitting  water  into  the  holds  and 
causing  serious  damage.  Oil  is  often  poured  on  the  w^ater  when 
waves  are  becoming  a  menace  to  a  vessel.  The  effect  of  oil  is 
to  smooth  the  surface  of  the  water,  thus  presenting  less  resistance 
to  the  wind  and  preventing  the  breaking  of  the  wave,  which  is  the 
real  danger  in  wave  motion.  The  power  of  waves  when  their 
movement  is  arrested  by  harbor  works  or  breakwaters  is  great 
beyond  description.  Waves  have  been  measured  with  a  pressure 
of  three  tons  to  the  square  foot.  The  havoc  wrought  by  these 
storm  waves  may  be  seen  on  any  shore  and  their  action  sets  up 
shore  currents  which  are  a  menace  to  navigation.  When  it  is 
considered  that  Galveston  was  destroyed  by  a  four-foot  wave 
and  that  the  water  fronts  of  Mobile  and  other  Gulf  cities  have 
been  severely  damaged  many  times  in  recent  years  by  wave  action 
caused  by  the  West  Indian  hurricanes,  some  conception  will  be 
gained  of  the  enormous  power  of  waves. 

Seaquakes  and  Tidal  Waves. — Another  form  of  wave  which 
has  done  great  damage  to  harbors  and  to  shipping  is  that  induced 
by  "seaquakes."  When  an  earthquake  occurs  the  faulting  of 
the  earth  may  reach  oat  under  the  ocean  and  the  violent  change 
^  Gregory,  Keller  &  Bishop,  "Physical  and  Commercial  Geography,"  p.  6. 


36  MAUIM':  IMSURANCE 

in  the  ocean  bed  j)ro(lucc.s  a  diiToience  of  level  in  the  water  which 
results  in  ;i  w;ivc  wiiicli  causes  the  water  to  regain  its  level.  This 
wave  striking  tiie  shore  carries  all  bel'oie  it  and  many  times  ships 
liave  been  carried  iidand  so  far  that  with  the  receding  of  the  water 
it  was  impossible  to  rcstoic  tiiem  to  their  native  eleinent.  These 
waves  are  usually  called  tidal  waves,  a  term  also  used  to  describe 
the  waves  produced  by  the  inrushing  tide  in  confined  bays.  A 
condjination  of  wind  and  high  tide  oft(^n  produces  a  water  level 
in  a  harbor  greatly  in  excess  of  the  normal,  overflowing  docks 
and  causing  heavy  losses  to  marine  underwriters. 

Tides. — The  action  of  the  sun  and  moon  working  in  con- 
junction on  the  water  masses  of  the  earth  produce  what  are 
known  as  tides.  This  effect  may  be  noted  even  in  the  smaller 
bodies  of  water  such  as  the  Gieat  lakes  of  the  American  Con- 
tinent. It  is  with  this  mighty  force  of  the  ocean,  however, 
that  marine  insurance  is  concerned.  While  the  tide  originates 
twice  daily  in  the  Southern  Ocean  where  the  joint  attraction 
of  the  sun  and  moon  seems  greatest,  this  great  wave,  nearly 
GOOO  miles  in  length  travels  swiftly  and  effects  the  whole  body 
of  water.  On  the  broad  expanses  of  the  ocean  its  effect  is  slight, 
but  when  more  shallow  water  is  reached,  or  where  the  moving 
masses  of  water  are  forced  into  small  bays,  or  through  channels 
its  effect  is  tremendous.  Whirlpools,  eddies,  rushing  currents, 
and  in  some  places  high  waves  result  which  offer  a  serious  menace 
to  shipping  and  cause  innumerable  wrecks.  Where  the  topog- 
raphy of  the  ocean  bed  produces  bays  connected  by  narrow 
straits  high  tide  may  occur  in  one  bay  at  the  same  time  as  low 
tide  in  the  adjoining  bay.  In  the  effort  to  reestablish  the  water 
level  the  water  rushes  through  the  connecting  channel  producing 
currents  known  as  eddies  or  races.  These  currents  have  ever 
been  the  dread  of  navigators.  In  early  history  we  read  of  the 
Maelstrom  of  the  Lofoten  Islands  and  of  Scylla  and  Charybdis  in 
the  Straits  of  Messina  which  were  the  terror  of  the  early  mariners. 
Modern  seamen  still  shun  the  races  at  Pertland  Firth  and  the 
Straits  of  Magellan.  Hell  Gate,  Long  Island,  taking  its  evil  name 
from  its  no  less  evil  reputation  has  only  been  made  reasonably 
safe  for  navigation  by  the  removal  at  great  cost  of  large  masses 
of  obstructing  rock.^ 

'Gregory,  Keller  it  Bishop,  "Phj'sicul  anil  Commercial  Cloography,"  p.  11. 


PHYSICAL  GEOGRAPHY  37 

Effect  of  Tides  on  Harbor  Development. — The  effect  of  tides, 
however,  is  not  altogether  bad.  In  fact  thay  are  the  scavengers 
of  the  harbors,  twice  each  day  drawing  out  the  unwholesome  water 
and  again  sending  back  fresh  supplies  of  ocean  water.  From  the 
viewpoint  of  commerce,  it  is  the  effect  of  tide  on  harbor  develop- 
ment that  is  of  interest.  As  will  appear  later  on,  some  of  the  most 
prosperous  harbors  owe  their  existence  to  the  tide,  whereas 
other  harbors  equally  good  in  their  virgin  condition,  because  of 
lack  of  tidal  flow  never  rise  to  positions  of  commercial  greatness. 
In  fact  so  important  is  the  effect  of  tides  on  the  usefulness  of 
harbors  that  tidal  almanacs  are  published  giving  navigators  in- 
formation to  enable  them  to  approach  and  enter  harbors  at  the 
most  favorable  hour.  The  sailing  and  arrival  of  ocean  vessels 
in  most  harbors  is  regulated  by  the  ebb  and  flow  of  the  tide,  not 
only  the  depth  of  water  but  the  strength  of  the  current  produced 
being  determining  factors  in  the  movement  of  vessels.  In  many 
harbors  ships  can  enter  or  depart  only  at  the  crest  of  the  tide, 
while  navigation  in  other  ports  is  possible  only  at  slack  water. 
Not  alone  is  the  direct  effect  of  tides  of  moment  to  navigators 
but  indirectly  the  tidal  currents  quickly  produce  banks  and 
channels  in  certain  places  making  the  charting  of  such  water 
impossible,  and  necessitating  the  use  of  local  pilots  familiar  with 
the  vagaries  of  their  particular  locality. 

Ocean  Currents. — While  the  ocean  water  is  constantly  in 
motion  owing  to  the  tide  and  the  effect  of  wind,  there  are  moving 
through  the  ocean  certain  well  defined  streams,  following  fairly 
definite  courses.  These  streams  of  water  are  known  as  ocean 
currents  and  are  interesting  from  the  marine  insurance  point  of 
view  more  because  of  their  effect  on  climate,  with  its  resultant 
productivity  or  sterility  of  hfe,  than  for  any  direct  bearing  which 
they  have  on  the  perils  of  the  sea.  These  currents  by  moderat- 
ing temperature  enable  men  to  produce  goods  thus  increasing 
the  subject  matter  of  insurance.  So  it  is  that  the  British  Isles, 
wherein  centers  the  bulk  of  marine  insurance,  owe  their  very 
existence  as  a  habitable  land  to  the  influence  of  the  Gulf 
Stream.  It  is  worthy  of  note  in  connection  with  these  currents 
that  derelict  vessels  entering  these  streams  follow  their  courses 
for  months  and  years  proving  a  constant  source  of  danger  to 
navigation  and  probably  accounting  for  the  loss  of  many  vessels 
posted  as  missing. 


38  MARINE  INSURANCE 

Calms. — 'r\w  iibscncG  of  wind  or  jitmospluMic  inovciiKMit  pro- 
iluccs  what,  ju'c  known  us  calms  and  as  ahead}'  indicated  in 
certain  parts  of  the  ocean  belts  of  calm  are  encountered.  To  the 
sailing  vessel,  this  passive  force  is  of  the  greatest  importance.  If 
a  vessel  unfortunately  enters  a  belt  of  calm  she  may  be  delayed 
for  days  and  weeks  before  being  able  to  extricate  herself  from  the 
toil  of  this  inactive  force.  Not  alone  is  the  danger  from  delay, 
but  stripped  of  projicUing  power  it  may  ])c  impossible  to  prevent 
a  vessel  running  ashore  through  the  drifting  induced  by  ocean 
currents.  To  the  steamer,  however,  under  ordinary  circum- 
stances, a  period  of  calm  offers  no  danger  and  causes  no  delay  and 
with  introduction  into  sailing  vessels  of  auxiliary  motive  power 
calms  become  of  less  importance  as  a  marine  problem. 

Fog. — Often  times  there  is  accompanying  a  period  of  calm 
another  passive  force  of  nature,  called  fog.  Fog  from  the  view- 
point of  marine  insurance  is  one  of  the  most  hnportant  of  natural 
phenomena.  Blotting  out  of  view  both  near  and  distant  objects 
the  mariner  navigates  by  dead  reckoning  and  the  underwriter 
pays  for  the  resultant  losses.  Fog  like  other  natural  phenomena 
is  intermittent  in  most  places,  but  in  some  sections  of  the  ocean  is 
more  or  less  constant.  Fog  is  the  condensation  of  moisture  in  the 
atmosphere  at  or  near  the  surface  of  the  ocean,  and  being  caused 
primarily  by  the  difference  in  temperature  between  the  air  and 
the  water,  fog  will  be  found  most  prevalent  where  the  climate  is 
moist.  Thus  conditions  tending  to  produce  fog  are  found  around 
the  British  Isles  wdicre  the  atmosphere  of  the  naturally  cool 
latitude  is  tempered  by  the  moist  warm  air  caused  by  the  Gulf 
Stream.  So,  off  the  Newfoundland  Banks  in  the  midsummer,  the 
warmer  air  tempered  by  the  effect  of  the  I^abrador  Current  pro- 
duces much  fog  and  makes  navigation  in  these  naturally  treach- 
erous waters  doubly  difficult.  Again  off  the  West  Coast  of 
South  America  the  warm  air  under  the  equator  affected  by  the 
cool  water  from  the  Japan  current  and  the  Ixicking  up  of  wind  anil 
moisture  by  the  Andes  Mountains  produces  long  periods  of  fog. 

Ice. — Ice  is  one  of  the  passive  forces  of  nature  which  is  a  real 
menace  to  navigation.  Its  effect  when  held  in  place  is  to  stop 
navigation  altogether  by  closing  harbors  and  preventing  access  to 
interior  ports  through  the  riveis.  The  real  danger,  however, 
arises  with  the  coming  of  milder  weather  and  the  breaking  of  the 


rnvsTCAL  CEoaRAniY  39 

ice.  Then  its  crushing  force  is  given  free  play  and  vessels  are 
strained  causing  leaks  or  are  sunk  as  the  result  of  tJie  piercing  of 
their  hulls.  Icel>ergs  present  a  more  insidious  form  of  the 
same  peril  as  they  are  often  encountered  far  from  the  regions  of 
ice  in  the  well  beaten  paths  of  ocean  commerce.  These  huge 
masses  of  ice  becoming  detached  by  the  spring  thaws  from  the 
parent  icefields  of  the  Arctic  move  slowly  with  the  ocean  current 
until  they  finally  melt  in  the  warmer  water  of  the  temperate  zone. 
These  ice  masses  floating  six-sevenths  submerged  and  often 
found  in  sections  where  foggy  conditions  prevail,  have  caused 
many  of  the  ocean  disasters,  notable  among  which  stands  the 
destruction  of  the  S.  S.  Titanic  in  April,  1912. 

Darkness. — The  further  north  or  south  of  the  Equator  vessels 
sail  in  the  fall  or  winter  months  the  greater  the  length  of  the 
period  of  darkness.  While  darkness  cannot  be  called  a  force  of 
nature,  it  is  so  closely  analogous  to  the  physical  forces  under 
consideration,  and  it  is  so  important  a  factor  in  ocean  navigation 
that  reference  to  it  cannot  be  omitted.  In  the  early  days  of 
navigation  it  was  customary  for  vessels  to  lay  to  in  the  darkness, 
and  only  after  some  elementary  knowledge  of  astronomy  was 
obtained  did  mariners  venture  to  navigate  at  night.  As  already 
indicated,  with  the  development  of  stable  governments,  light 
houses  have  been  established  on  dangerous  coasts  as  guides  to 
mariners.  Much  has  been  done  in  this  direction,  but  more 
remains  to  be  done.  In  the  Baltic  Sea  and  its  connecting  gulfs, 
in  the  North  Sea  and  around  the  coasts  of  the  Scandinavian 
Peninsula  where  there  is  much  trade  the  factor  of  darkness  from 
the  viewpoint  of  marine  underwriting  assumes  a  prominent  place 
in  determining  adequate  rates.  These  waters  at  best  afford 
dangerous  navigation,  but  when  it  is  considered  that  in  the  winter 
months  there  are  but  few  hours  of  daylight,  the  perils  to  mariners 
are  greatly  increased. 

Harbors  and  Their  Development. — The  question  of  harbors  and 
harbor  development  is  as  important  as  the  consideration  of  the 
physical  forces.  In  the  selection  of  harbor  sites  the  physical 
forces  and  the  natural  topography  of  the  ocean  bed  are  two  of  the 
determining  factors.  Winds,  waves  and  ocean  currents  are  of 
nearly  equal  importance  with  shoals,  reefs  and  bars  in  deciding 
whether  or  not  a  particular  site  is  suitable  for  harbor  development. 


•10  MARINE  INSURANCE 

Another  factor  of  vital  impoi  taupe  is  the  relation  of  the  proposed 
harhor  site  to  tli(>  liiiitcrlaiid.  If  the  hack  country  is  fertile  and 
access  to  it  pliysically  easy,  whether  by  natural  water  routes  or 
by  the  building  of  railroads,  an  otherwise  unsuitable  harbor  site 
may  be  profitably  improved  by  man.  Sucii  harl)or  development 
will,  however,  contirnie  only  so  long  as  the  artificial  improvement 
is  pi()fita})lo.  'J'hus  it  happens  that  several  harbors  on  Long 
Island  Sounil  wiiich  have  access  to  tlie  interior  by  rivers,  were  pros- 
perous ports  so  long  as  small  vessels  sufficed  for  water  carriage. 
With  the  increase  in  the  size  of  vessels,  the  cost  of  removing  bars 
and  keeping  channels  open  was  gieater  than  the  resultant  gain  and 
many  ports  such  as  New  Haven  and  New  London  and  Provi- 
dence fell  behind  in  the  race  for  harbor  prestige.  Then  again  the 
tojwgraph}'  of  the  ocean  bed  in  many  parts  of  the  world  is 
constantly,  though  gradually,  changing.  Shore  Ihies  are  being 
elevated  in  some  sections  and  depressed  in  others.  The  coast  of 
Chili  has  risen  from  20  to  30  feet  in  the  last  two  hundred  years. 
Part  of  the  Swedish  Coast  has  risen  three  feet  a  century  while  the 
Netherlands  and  our  own  New  York  and  New  Jersey  Coasts  are 
gradually  sinking.^  When  it  is  considered  that  in  many  harbors 
every  foot  of  depth  is  vital  to  the  shipping  and  to  the  prosperity 
of  the  port,  the  seriousness  of  this  movement  will  be  apparent. 
Types  of  Harbors. — Man  naturally  has  followed  the  lines  of 
least  resistance  in  the  selection  of  harbor  sites  and  those  which 
he  has  selected  fall  into  six  general  classes,^  viz.: 

1.  Drowned  valley  harbors  as  New  York,  Norfolk,  Puget  Sound, 
San  Francisco. 

2.  Barrier  beach  harbors  as  Galveston. 

3.  River  harbors  as  New  Orleans,  London  and  Portland,  Oregon. 

4.  Coral  reef  harbors  as  Hamilton,  Bermuda  and  Key  West,  Florida. 

5.  Crater  harbors  as  Aden. 

G.  Artificial  harbors  as  Port  of  Los  Angeles  (San  Pedro),  California 
and  Manchester,  England. 

Drowned  Valley  Harbors. — In  manj'  places  harbors  will  pre- 
sent a  combination  of  topographical  features  as  in  the  case  of 
New   York   where   there  is  a  drowned  valley  through  which  a 

'  Gregory,  Kec'lcr  &  Bisliop,  "Physical  and  Coniincrcial  CiC'ograpliy,"p.  19. 
*  Gregory,  Keelor  it  BisliDp,  "Physical  ami  ( 'omnu-rcial  Geography,"  p.  23. 


PHYSICAL  GEOGRAPHY  41 

mighty  river  flows  offering  easy  access  to  the  interior.  Natural 
harbors  as  those  of  the  drowned  valley  type  are  not  retarded  in 
their  development  because  of  unfortunate  natural  conditions. 
San  Francisco  will  always  be  a  leading  harbor  of  our  Pacific 
Coast,  regardless  of  how  many  times  the  city  may  be  shaken  by 
earthquake  shocks.  Nature  has  here  carved  out  a  natural  gate 
of  entrance  which  will  always  be  used  even  though  there  is  the 
possibility  of  heavy  toll  from  earthquake  shock.  San  Francisco 
not  only  affords  much  safe  harbor  space  but  access  to  the  interior 
is  rendered  easy  by  the  Sacramento  River  which  flows  into  San 
Francisco  Bay.  While  it  is  essential  in  a  harbor  that  there  be 
sufficient  depth  to  safely  float  the  largest  vessels  which  will  use 
the  port,  too  great  depth  may  render  a  harbor  less  desirable  as 
vessels  will  be  unable  to  find  easy  anchorage  ground.  This  fault 
is  sometimes  found  in  the  drowned  valley  type  of  harbor  as  in  the 
port  of  Seattle  where  anchorage  buoys  are  placed  to  which  vessels 
moor. 

Barrier  Beach  Harbors. — The  natural  flow  of  shore  currents  in 
time  produces  barrier  beaches  which  afford  protection  from  the 
force  of  the  ocean  waves  and  storms.  In  many  sections  these 
beaches  are  at  the  edge  of  a  fertile  hinterland  and  where  sufficient 
depth  is  found  in  the  sheltered  water  between  the  barrier  beach 
and  the  mainland  man  has  built  harbors.  The  most  notable 
example  of  this  harbor  type  is  Galveston,  where  at  the  end  of  a 
barrier  beach  close  to  an  ocean  inlet  a  great  and  thriving  port 
has  been  established.  Fed  by  a  back  country  exceedingly  fertile 
the  development  of  Galveston  has  been  worth  while,  and  its 
commercial  supremacy  has  justified  the  great  expense  incurred 
in  the  building  of  wharves  and  in  the  construction  of  harbor  works 
and  channels. 

River  Harbors. — The  river  type  of  harbor  is  perhaps  the  earliest 
form,  as  before  the  days  of  railroads,  when  overland  commerce  was 
carried  on  by  the  slow  and  laborious  process  of  human  or  animal 
carriage,  the  river  offered  easy  access  to  the  interior.  Vessels 
were  of  moderate  draft,  and  because  of  this  important  cities 
were  located  at  the  head  of  river  navigation,  cities  which  now 
have  given  place  to  the  larger  ports  at  or  near  the  river  mouth. 
While  as  a  rule  the  river  harbors  themselves  have  ample  depth  of 
water,  the  silt  carried  down  by  the  river  current  produces  barriers 


42  MARINE  INSURANCE 

;il  I  hi'  ii\cr  mouth,  which  in  the  case  of  the  hirji;cM-  rivoi's  may 
assume  tlie  form  of  a  delta.  To  keep  clear  the  channel  of  the 
harbor  site,  various  devices  have  been  adopted.  In  the  case  of 
New  Orleans  situated  about  100  miles  from  the  (lulf  of  Mexico, 
by  a  system  of  jetties  confining  and  directing  the  natural  flow  of 
tiie  water,  the  liver  itself  keeps  ship  channels  clear  and  deep  by 
forcing  the  collecting  sediment  out  into  the  waters  of  the  Gulf. 
In  other  river  harbors  artificial  banks  have  been  created  to  con- 
trol the  river.  River  harbors  as  a  rule  are  not  located  on  the 
deltas  as  high  water  and  increased  currents  often  shift  the  course 
of  the  stream  and  may  carry  the  river  far  away  from  the  estal)- 
lishcd  harl)or. 

Coral  Reef  Harbors. — Coral  reef  harbors  aie  comparatively 
few  in  number  and  are  of  little  commercial  importance.  Located 
on  coral  islands  they  present  several  forms.  The  most  common 
are  the  protecting  reef  type  and  the  atoll  which  affords  a  circular 
harbor  to  which  entrance  is  obtained  through  a  narrow  passage- 
way. Situated  at  places  where  there  is  no  great  back  country 
these  harbors  are  of  little  importance,  except  where  they  have 
been  developed  into  coaling  or  supply  stations  on  the  great  high- 
ways of  trade. 

Crater  Harbors. — The  crater  type  of  harbor  has  but  few  ex- 
amples and  is  of  little  importance  conunercially.  Formed  by 
the  submerged  crater  of  an  old  volcano,  the  prime  requisites  of 
easy  access  to  a  fertile  hinterland  are  usually  missing  and  the 
port,  unless  used  as  a  way  station  on  a  trade  route,  develops 
little  commercial  importance. 

Artificial  Harbors. — Not  only  has  man  conquered  nature  in 
the  improvement  of  natural  harbors  but  also  in  the  creation  of 
artificial  ports.  Whether  or  not  an  artificial  harbor  is  economic- 
ally possible  depends  on  the  back  country.  If  there  is  a  pros- 
perous interior  containing  fertile  fields  and  large  manufacturing 
centers,  the  need  for  an  ocean  outlet  will  arise  and  man  will 
convert  an  open  roadstead  into  a  sheltered  harlior  by  building 
a  breakwater,  or  by  blasting  out  or  dredging  a  shallow  river 
channel  produce  a  river  port.  An  example  of  the  first  method  is 
seen  at  the  j^ort  of  Los  Angeles  (San  Pedro),  California,  where 
the  marvelous  development  of  Los  Angeles  and  of  Southern 
California  created  the  demand  for  a  convenient  point  of  water 


PHYSICAL  GEOGRAPHY  43 

contact  with  the  rest  of  the  world.  The  great  shipping  port  of 
Glasgow  illustrates  the  second  method  where  a  river  but  two  or 
three  feet  deep  has  developed  into  a  great  ocean  trade  center. 
The  expense  of  constructing  these  artificial  harbors  is  necessarily- 
great  and  their  permanence  rather  uncertain.  Situated  in 
naturally  unfavorable  locations,  many  artificial  harbors  after 
the  incurrence  of  great  expense  have  been  rendered  useless  by 
the  forces  of  wind  and  wave. 

Open  Roadsteads. — Along  many  coasts  there  are  no  natural 
harbors  and  the  back  country  is  not  far  enough  developed  to 
warrant  the  construction  of  artificial  harbors.  In  these  localities 
vessels  anchor  off  shore  in  fair  weather  and  discharge  their 
cargoes  into  smaller  craft  which  carry  th  to  the  shore.  These 
open  roadsteads  ofTer  no  protection  from  storm,  and  in  the  event 
of  storm  or  heavy  weather  vessels  raise  anchor  and  make  for 
the  open  sea.  The  hazards  in  connection  with  such  anchorages 
are  very  great,  and  with  the  growth  of  the  shore  city  and  the 
back  country  breakwaters  and  moles  are  built  if  the  coast  line 
and  sea  bottom  will  permit  and  an  artificial  port  arises. 

Tidal  Harbors. — Many  important  harbors  are  so  affected  by 
the  rise  and  fall  of  the  tide,  that  tidal  basins  are  built  in  which 
the  water  is  impounded.  Vessels  enter  and  leave  the  basin 
on  high  water  and  the  gates  are  then  shut  until  the  next  high 
tide.  In  other  localities  it  is  usual  for  vessels  to  take  the  ground 
at  low  tide,  floating  again  on  the  next  flood  tide.  The  growth 
of  a  country  depends  largely  on  its  coast  line.  If  there  are  natural 
harbors  the  back  country  will  develop  quickly  and  the  seaboard 
cities  will  l:)ecome  rich  and  prosperous.  If  on  the  other  hand 
harbor  sites  are  few,  development  will  be  retarded. 


flTAPTER  2 

COMMERCIAL     GEOGRAPHY     IN     ITS     RELATION     TO 
MARINE   INSURANCE.     COMMERCIAL  DOCUMENTS 

The  Processes  of  Trade. — ^('oinnicrcial  jijcojiiraphy  is  no  less 
iiui)()rt;inl  to  tlio  student  of  nuirinc  insurance  tlian  is  pliysical 
geography.  While  it  is  necessary  for  the  inarine  underwriter 
and  the  insurance  broker  to  know  the  physical  conditions  with 
which  he  is  confronted,  it  is  also  essential  that  he  have  some  clear 
idea  of  the  reasons  for  trade  and  of  the  processes  thereof.  It 
has  been  truly  said  that  the  successful  man  nuist  know  "every- 
thing of  something  and  something  of  everything."  This  is 
especially  true  of  marine  underwriting  and  its  kindred  branches. 
Without  a  reasonable  knowledge  of  banking,  foreign  exchange 
and  merchandizing,  a  marine  underwriter  is  not  in  a  position  to 
clearly  and  logically  consider  the  risks  which  are  offered  to  him. 
Some  knowledge  of  the  intrinsic  qualities  of  the  various  commodi- 
ties offered  for  insurance,  of  their  mode  of  packing,  of  the  con- 
ditions surrounding  their  shipment  and  of  the  effect  of  the 
elements  upon  them  are  absolutely  essential  in  order  that  in- 
telligent consideration  may  be  given  to  the  question  of  insurance. 
It  is  also  important  that  a  very  definite  knowledge  be  had  of  the 
meaning  of  the  various  shipping  documents  and  of  their  purpose 
in  the  completion  of  a  commercial  transaction. 

Commerce  is  the  Exchange  of  Products. — It  is  the  desire  of 
man  to  exchange  products,  that  has  created  commercial  activity. 
That  in  truth  is  what  commerce  is — an  exchanging  between 
men  and  nations  of  the  products  which  they  produce.  In  his 
original  state,  each  individual  provided  for  his  own  needs;  he 
fed  himself,  he  clothed  himself,  he  housed  himself.  With  the 
progress  of  time,  groups  of  people  perceived  that  each  individual 
man  had  a  particular  gift  and  that  by  using  this  talent,  not  only 
for  his  own  needs,  but  for  the  needs  of  others  in  his  group,  he 
was  able  to  produce  a  better  article  with  a  less  expenditure 
of  effort.     Individuals  of  a  group  therefore  became  specialists 

44 


COMMERCIAL  GEOGRAPHY  45 

providing  certain  necessary  commodities  for  their  own  use  and 
for  the  other  members  of  their  group  and  thus  the  exchange  of 
commodities  between  men  originated.  However,  the  speciahza- 
tion  in  any  one  group  was  restricted  by  the  physical  environ- 
ment in  which  that  group  hved.  Nature  finally  sets  the  bounds 
of  man's  development.  Rubber  cannot  be  grown  commercially 
in  the  temperate  zone,  neither  is  wheat  a  successful  crop  in  the 
tropics.  The  nature  of  man  is  determined  to  a  large  extent  by 
climate.  The  heat  and  moisture  of  the  tropics  induce  lethargy, 
while  the  cool  bracing  atmosphere  of  the  temperate  zones  ener- 
gizes men  and  leads  them  into  new  and  difficult  lines  of 
endeavor. 

The  Demand  for  Goods. — With  progress  man  has  acquired 
new  tastes  and  new  desires.  Bound  down  by  natural  conditions, 
he  soon  learned  that  the  cravings  of  his  nature  could  be  satisfied 
only  by  bringing  from  its  natural  environment  the  raw  or  the 
finished  product  which  he  desired.  This  necessitated  the  carriage 
of  commodities  between  groups  and  thus  commercial  interchange 
developed.  The  law  of  supply  and  demand  came  into  play 
and  commerce  increased  quickly  as  new  and  strange  products 
were  brought  to  the  attention  of  an  ever  increasing  number  of 
people.  The  early  paths  of  commerce,  as  has  been  noted,  were 
overland,  or  across  sheltered  water.  The  demand  for  the  prod- 
ucts of  the  East,  which  the  Crusades  had  ushered  in  necessitated 
some  new  method  of  supplying  the  market.  Quicker  and  safer 
routes  of  travel  became  essential.  Two  solutions  of  the  problem 
were  possible,  namely,  first,  the  building  of  better  vessels,  second, 
the  establishment  of  new  trade  routes. 

The  Opening  of  New  Trade  Routes. — Both  solutions  were 
adopted.  The  golden  age  of  discovery  dawned  when  men  and 
nations  after  the  decay  of  the  Middle  Ages  began  to  take  on 
new  life  and  to  read  nature's  laws.  New  routes  of  trade  were 
opened  by  hardy  mariners  who  built  ships  staunch  enough  to 
withstand  the  ordinary  action  of  the  ocean  forces.  It  is  inter- 
esting to  observe  that  while  civilization  originated  in  the  East, 
it  has  traveled  westward  and  its  development  shows  a  general 
westward  and  southward  tendency.  Colonization  followed  the 
opening  of  new  trade  routes.  The  theory  of  trade,  until  com- 
paratively recent  times,  was  not  well  understood.     Bai-ter  was 

5 


46  MAL'fXi:  IXSf'ILAXCE 

looked  upon  MS  a  one-sided  affair  where  tlie  stronsor  or  wiser 
Irader  re;i|>ed  an  advantage  at,  the  e.\|)ens(>  of  his  weaker  or  less 
skillful  fellow.  If  the  inon;  ])ow<M-ful  ti'ader  could  not  (obtain 
what,  he  wanle(l  l»y  peaceful  means  he  attempted  to  take  it  by 
force.  Trade  can  only  be  i)erniancntly  successful  when  each 
trader  feels  that  in  the  exchange  of  commodities  he  has  reaped 
a  profit  whether  it  be  measured  in  a  symbol  of  exchange  or  in 
an  added  benefit  ac(iuired. 

Primitive  Barter. — The  earliest  type  of  trade  of  which  record 
exists  is  what  is  known  as  silent  or  dumb  barter,  a  method  which 
still  persists  among  some  uncivilized  tribes.  Trade  of  this 
character  is  made  because  of  lack  of  trust  between  the  bar- 
gainers. Herodotus  describes  this  method  of  trade  as  practised 
by  the  Carthaginians  in  their  dealings  with  the  African  natives. 
Approaching  a  trading  port  the  Carthaginians  would  go  ashore 
with  their  goods,  build  fires  to  attract  the  attention  of  the  natives 
and  then  return  to  theu*  ship.  The  natives  would  approach  and 
inspect  the  proffered  merchandise,  place  beside  it  native  products 
which  they  considered  sufficient  payment,  and  retire.  The  traders 
would  again  go  ashore,  examine  the  native  goods  and  if  in  their 
opinion  sufficient  in  quantity  and  value,  would  take  them  back 
to  their  ship  and  depart.  If  not,  they  returned  to  their  ship 
empty  handed  to  await  further  overtures  from  the  natives. 
This  process  was  continued  until  the  traders  were  satisfied  with 
the  native  offer.  It  is  difficult  to  explain  why  the  natives  did 
not  steal  the  merchandise  of  the  traders  and  make  away  with  it. 
Doubtless,  however,  these  early  traders  had  methods  of  inducing 
fear  which  spoke  louder  than  words,  and  made  this  method  of 
exchange  at  once  both  practical  and  successful.  History  re- 
counts that  the  Carthaginians  pursued  these  peaceful  methods 
of  trade  only  when  forceful  measures  were  not  apt  to  succeed. 

Types  of  Trade. — In  the  development  of  trade  two  general  types 
appear.  These  are  known  as  the  Mediterranean  and  the  Oceanic 
types.  The  former  is  represented  by  the  early  Mediterranean 
and  Baltic  Sea  commerce,  the  latter  by  the  oversea  routes  to 
the  Orient.  In  marine  insurance  by  custom  a  similar  classi- 
fication is  made  into  coastwise  and  ocean  trade.  The  Oceanic 
type  is  of  cour.se  the  outgrowth  and  development  of  that  used  in 
the  Mediterranean,  but  each  class  of  trade  has  exerted  and  still 


COMMERCIAL  GEOGRAPHY  47 

exerts  its  influence  on  commercial  development.  Indeed  the 
two  types  merge  into  one  another  and  with  their  overland  con- 
nections cover  the  whole  earth  with  a  network  of  routes  over 
which  the  nations  exchange  their  products. 

The  Use  of  Symbols  and  the  Bill  of  Exchange. — The  method 
of  exchanging  goods  has  improved  with  the  passing  of  time.  No 
longer  do  individuals,  except  in  rural  districts,  exchange  goods  for 
goods.  Early  in  civilization  it  was  found  desirable  to  have  sym- 
bols of  value  which  were  given  in  exchange  for  commodities. 
The  Indian  used  wampum,  other  nations  used  salt,  arrow  heads 
or  gold  dust.  Later  actual  money  or  gold  or  silver  or  the  baser 
metals  came  into  use,  and  among  the  more  civilized  peoples 
actual  barter  fell  into  disuse.  With  the  growth  of  trade,  however, 
it  M^as  found  that  there  was  not  enough  of  the  precious  metals  to 
serve  the  needs  of  trade,  and  its  transfer  from  one  individual  or 
one  country  to  another  was  attended  with  great  hazard.  Accord- 
ingly man  sought  and  found  a  new  method  of  payment  by  credits. 
The  Jews  in  the  twelfth  century  devised  the  bill  of  exchange  or 
draft,  which  altered  the  whole  method  of  conducting  commerce 
and  made  possible  the  tremendous  growth  of  international 
trade. 

Marine  Insurance  Essential  to  Overseas  Trade.^ — It  is  at 
this  point  that  marine  insurance  fits  into  modern  commercial 
life.  Historically  it  has  been  noted  already  that  marine  insur- 
ance in  its  present  form  originated  at  about  the  same  time  as 
the  bill  of  exchange.  This  seems  a  logical  order  of  progress. 
The  bill  of  exchange  when  issued  in  conection  with  a  shipment 
of  goods,  on  the  security  of  such  goods,  would  become  a  mere 
unsecured  debt  in  the  event  of  the  goods  being  lost  or  destroyed. 
Some  additional  guarantee  was  necessary  in  order  to  make  the 
bill  of  exchange  a  safe  substitute  for  actual  money.  This  se- 
curity was  and  is  provided  by  the  policy  or  certificate  of  marine 
insurance.  Therefore  a  knowledge  of  the  method  of  financing 
commercial  transactions  becomes  an  essential  part  of  the  educa- 
tion of  the  student  of  marine  insurance. 

Commercial  Documents. — In  the  ordinary  commercial  trans- 
action there  are  four  documents  which  collectively  are  known 
as  a  commercial  set.  These  documents  represent  and  take  the 
place  of  the  goods  themselves  in  the  financing  of  the  transaction, 


•18  MARINE  INSURANCE 

and  pass  current  in  all  the  markets  of  the  world.  These  four 
documents  arc: 

1.  The  invoice  which  is  the  merchant's  bill  for  the  goods. 

2.  The  bill  of  lading  which  is  the  carrier's  receipt  for  the  goods. 

3.  The  draft  or  bill  of  exchange  which  is  tlie  merchant's  payment. 

4.  The  insurance  certificate  which  is  the  document  of  guarantee. 

An  insight  into  each  of  these  documents  and  its  relation  to 
the  completion  of  a  commercial  venture  is  essential  before  any 
clear  understanding  may  be  had  of  international  trade  and 
finance. 

The  Invoice. — First  there  is  the  invoice  or  bill  of  goods.  A 
merchant  in  making  a  sale  of  goods,  negotiates  with  the  buyer 
as  to  price,  discounts  and  terms  of  sale.  Having  agreed  one 
with  another  the  contract  of  sale  is  made  and  the  invoice  sets 
forth  in  writing  the  terms  and  conditions  of  the  transaction. 
The  commodities  sold  are  listed  one  by  one,  the  quantity  shown 
and  the  price  per  unit  indicated.  Goods  are  marked  and  num- 
bered, that  is  each  package  is  stamped  with  an  identifying 
symbol  and  if  there  is  more  than  one  package  with  the  same 
mark,  consecutive  numbers  follow  the  mark  on  each  package. 
These  marks  and  numbers  appear  on  the  invoice.  In  addition 
there  may  be  charges  for  packing,  cartage  and  consular  fees. 
Whether  or  not  charges  for  insurance  and  freight  \vill  appear 
on  the  invoice  depends  on  the  terms  of  sale.  Three  general 
forms  of  sale  are  common  in  commercial  transactions,  viz.: 
cost  (C),  cost  and  freight  (C&F)  and  cost,  insurance  and  freight 
(C.I.F.). 

Cost  Sales.  F.O.B.  and  F.A.S. — Cost  sales  require  the  seller 
to  provide  the  goods  packed  and  ready  for  shipment.  The 
seller  may  agree  to  act  as  agent  for  the  buyer  in  effecting  insur- 
ance and  in  engaging  freight  space,  but  these  duties  are  usually 
performed  by  a  freight  broker  to  whom  the  goods  are  delivered 
by  the  seller,  or  subject  to  whose  order  the  seller  holds  the  goods. 
In  any  event  no  charge  appears  on  the  invoice  for  freight  or 
insurance.  In  other  words  when  the  merchant  ships  the  goods 
or  delivers  them  to  the  buyer's  agent  he  is  out  of  the  transaction 
except  with  respect  to  the  payment  of  the  invoice.  It  sometimes 
happens  that  in  a  cost  sale  the  amount  of  freight  may  appear  on 


COMMERCIAL  GEOGRAPHY  49 

the  invoice,  but  such  entry  is  merely  a  notice  of  the  amount  of 
freight  that  is  or  will  be  due  the  vessel  and  is  not  included  in  the 
total  amount  of  the  bill.  The  contract  of  sale  may  require  that 
the  seller  of  the  goods  deliver  the  property  at  a  certain  place 
short  of  destination  where  the  buyer  will  take  title.  In  such 
event  notation  is  made  on  the  invoice  of  such  terms  of  sales  as 
F.O.B.  cars  Chicago  or  F.A.S.  steamer  at  New  York.  The 
letters  F.O.B.  are  a  commercial  abbreviation  for  "free  on  board. " 
A  merchant  buying  goods  in  various  Western  cities  may  arrange 
for  carload  lot  shipments  from  Chicago  and  accordingly  agrees 
with  each  seller  that  the  latter  will  deliver  and  be  responsible 
for  the  property  until  delivered  on  board  the  cars  at  Chicago. 
On  the  other  hand  a  foreign  buyer  may  wish  to  have  no  responsi- 
bility until  the  goods  are  at  the  shipside  of  the  steamer  which  is 
to  carry  them  to  destination,  and  he  accordingly  requires  the 
seller  to  deliver  the  goods  F.A.S.  steamer  New  York,  F.A.S 
stands  for  the  words  "Free  along  side,"  the  seller  assuming  all 
charges  and  risk  from  the  original  point  of  shipment  until  de- 
livered at  the  side  of  the  steamer  ready  for  loading. 

Cost  and  Freight  Sales  (C&F). — A  cost  and  freight  sale 
(C  &  F)  is  one  in  which  the  seller  bills  the  goods  at  a  price  which 
includes  the  cost  of  the  goods,  the  incidental  packing  and  other 
charges  and  the  cost  of  delivering  the  property  at  the  ultimate 
destination.  No  responsibility  is  assumed  for  safe  delivery  at 
destination,  the  duty  of  providing  insurance  resting  on  the  buyer. 
If  the  freight  is  payable  at  destination,  the  amount  which  will 
then  be  due  is  included  in  the  invoice  with  the  other  charges, 
but  this  amount  of  freight  is  deducted  at  the  foot,  credit  thus 
being  given  the  seller  so  that  he  may  assume  this  charge  when 
delivery  is  made.  If  the  goods  are  not  delivered  in  specie  the 
freight  will  not  be  due.  It  will  be  noted  that  under  a  cost 
and  freight  sale  the  seller  assumes  the  responsibility  of  providing 
freight  room  for  the  goods,  a  matter  not  altogether  easy  in  time 
of  shortage  of  tonnage. 

Cost,  Insurance  and  Freight  Sales  (C.I.F.). — Under  a  C.I.F. 
Sale  (cost,  insurance  and  freight)  the  seller  practically  agrees 
to  guarantee  delivery  of  the  property  purchased  by  the  buyer. 
He  agrees  to  set  the  goods  down  at  the  buyer's  warehouse  free 
of  all  charges.     Deduction  maybe  made  of  the  amount  of  collecti- 


50  ^fAnI\F  IXSCRAXCE 

l)l(i  freight  as  in  tin;  cost  and  freight  sale  and  it  may  be  that  the 
buyer  will  assume  responsibility  foi-  the  jKiyment  of  duties  and 
other  loeal  charges  accruing  at  d(^stination.  AV'hethcr  or  not 
these  special  charges  will  l)c  assumed  should  either  be  clearly 
set  forth  in  the  contract  of  sale  and  noted  in  brief  on  the  invoice, 
or  be  so  well  established  by  custom  and  usage  as  not  to  lequire 
special  mention.  Custom  and  usage  play  an  exceedingly  im- 
portant part  in  the  conduct  of  commercial  transactions,  and  in 
the  absence  of  evidence  to  the  contrary  it  will  be  presumed  that 
a  transaction  is  to  be  completed  in  accordance  with  the  customs 
and  usages  in  vogue  with  respect  to  similar  transactions.  Under 
C.I.F.  terms  the  seller  is  not  only  obligated  to  provide  freight 
space,  but  must  protect  the  goods  by  insurance,  obtaining  cover- 
age in  the  usual  form  provided  for  the  insurance  of  such  goods 
with  respect  to  particular  average  (partial  loss),  war  risk  and 
geographical  limits.  If  the  seller  has  quoted  a  lump  sum  price  on 
the  C.I.F.  basis  he  will  be  liable  for  fluctuations  in  the  freight 
and  insurance  markets.  This  being  so,  it  is  quite  common  when 
unusual  conditions  prevail,  as  in  war  times,  to  merely  fix  a  price 
for  the  goods  themselves  in  the  contract  of  sale,  to  which  shall 
be  added  on  the  invoice  the  cost  of  insurance,  freight  and  other 
charges  at  the  rates  prevailing  at  the  date  of  shipment. 

Invoice  Determines  Relation  of  Buyer  and  Seller. — The  fore- 
going explanation  of  "terms  of  sale,"  and  there  are  many  modifi- 
cations of  the  three  forms  mentioned,  wiU  indicate  the  importance 
of  the  invoice  in  settling  the  relations  of  the  parties  to  a  com- 
mercial transaction.  Its  importance  from  the  viewpoint  of  in- 
surance will  be  evident,  when  it  is  considered  that  in  a  cost  and 
freight  sale  "F.A.S.  Ship"  or  "F.O.B.  Ship"  the  seller  provides 
insurance  until  the  goods  are  alongside  ship  in  the  first  instance 
or  until  on  board  ship  under  the  second  illustration,  while  the 
buyer  must  provide  protection  from  that  time  on.  In  the  event 
of  loss  occurring  at  the  port  of  loading  the  invoice  will  determine 
at  whose  risk  the  property  was  and  upon  which  set  of  under- 
writers, those  of  the  buyer  or  the  seller,  the  burden  of  responding 
for  the  loss  will  fall.  A  consular  invoice  accompanying  the  ship- 
ping documents,  may  be  required  in  the  shipment  of  goods  be- 
tween foreign  nations.  In  such  case  the  seller  having  made 
out  his  invoice  presents  the  same  to  the  consul  of  the  country  to 


COMMERCIAL  GEOGRAPHY  51 

which  the  goods  arc  consigned,  or  through  which  they  may- 
pass,  or  to  both.  Each  certifies  that  the  invoice  is  proper,  and 
signs  and  attaches  the  seal  of  his  office  to  the  document.  This 
vis6  by  the  consul  indicates  that  the  shipment  has  been  made  in 
proper  form,  that  the  price  for  customs  purposes  is  fair  and  that 
the  rules  and  regulations  respecting  such  shipments  have  been 
complied  with.  In  any  disturbed  state  of  the  world's  commerce 
this  vis^  of  the  consul  is  of  the  greatest  importance.  When  war 
conditions  exist  various  forms  of  export  and  import  licenses 
may  have  to  be  obtained  and  other  unusual  requirements  com- 
plied with  before  shipment  may  be  made. 

The  Charter  Party. — Before  proceeding  to  the  consideration 
of  the  second  document  in  the  commercial  set,  the  bill  of  lading, 
it  will  be  necessary  to  gain  some  idea  of  an  agreement  which  in 
many  cases,  underlies  the  bill  of  lading.  This  is  the  charter 
party,  a  document  embodying  the  terms  of  a  contract  for  the 
hire  of  the  whole  or  a  part  of  a  vessel.  The  charter  party  and  the 
bill  of  lading  while  both  relating  to  the  ship  itself  may  be  differ- 
entiated by  describing  the  charter  party  as  a  contract  for  the 
hire  of  the  vessel  as  a  carrying  medium,  whereas  the  bill  of  lading 
is  a  contract  of  transportation.  Owners  of  vessels  may  be 
divided  into  three  classes,  first,  those  who  have  vessels  specially 
designed  and  constructed  for  the  carriage  of  their  own  property, 
such  as  the  oil  tank  lines;  second,  companies  organized  for  the 
transportation  as  common  carriers  of  goods  over  certain  definite 
routes  and  owning  vessels  known  as  "liners;"  thu'd,  individuals 
or  companies  who  enter  the  ship  business  as  owners  but  not  with 
any  definite  employment  for  the  vessels  which  they  own.  Their 
vessels  are  for  hire  and  will  enter  any  trade  for  which  they  are 
adapted  as  the  commercial  demand  requires.  These  vessels  are 
known  as  "tramps"  and  the  document  setting  forth  the  contract 
by  which  the  vessel  is  rented  is  the  "  charter  party."  Two  general 
forms  of  charter  party  exist,  but  there  are  many  modifications 
of  these  general  forms.  Under  the  first  and  more  common  form, 
the  vessel  owner  hires  his  vessel  to  the  charterer  for  a  definite 
period  or  for  a  described  voyage  at  a  determined  rate  of  com- 
pensation, the  charterer  to  have  the  entire  use  of  the  vessel,  but 
the  owner  to  operate  and  be  responsible  for  the  conduct  of  it. 
Under  the  second  general  form  of  charter,  the  owner  transfers 


52  MAiaXK  ISSU RANGE 

his  vessel  as  a  \rM\\  sliip,  tluil  is  wilhoul  captain,  crew,  fuel  or 
provisions,  to  the  charterer  upon  whom  falls  the  entire  Ijurden 
of  the  operation  of  the  vessel  and  the  entire  responsibility 
for  the  preservation  and  safety  of  it.  V>y  a  "bare  boat"  charter 
as  it  is  known,  the  owner  transfers  to  the  charterer  everything 
but  the  legal  title  to  the  vessel. 

Forms  of  Charters. — As  a  general  rule  vessels  are  chartered 
for  one  of  two  purposes.  The  charterer  may  be  engaged  in  some 
specific  line  of  trade  where  vessel  space  in  large  quantities  is 
needed  as  in  the  shipment  of  bulk  cargoes  such  as  grain,  coal  or  of 
baled  or  bagged  goods  such  as  cotton,  coffee  or  sugar.  For  these 
cargoes  the  merchant  could  not  rely  on  obtaining  sufficient  space 
on  liners  and  so  through  vessel  brokers  who  are  in  touch  with  the 
freight  markets  of  the  world  he  will  engage  one  or  more  entire 
ships  either  on  a  basis  of  payment  of  so  much  a  day,  so  much  a 
voyage,  or  so  much  a  unit  of  cargo  carried.  Such  charters  are 
made  in  various  forms,  each  particular  trade  having  a  special 
form,  some  associations  of  merchants  engaged  in  the  same  trade 
having  standard  forms  for  the  chartering  of  vessels  for  their 
particular  trade.  The  second  general  reason  for  chartering  a 
vessel,  will  be  the  necessity  of  a  line  operating  vessels  over 
definite  routes  requiring  additional  tonnage.  In  many  cases 
where  a  line  charters  a  ship,  especially  if  it  be  a  long  time  charter, 
the  vessel  will  be  taken  over  on  the  bare  boat  form.  During  the 
world  war  much  of  the  chartering  done  by  the  governments  was 
on  the  bare  boat  form. 

The  Bill  of  Lading. — This  naturally  leads  to  a  consideration  of 
the  bill  of  lading.  If  the  vessel  owner  or  the  charterer  "puts 
his  vessel  on  the  berth  "  as  it  is  known,  to  load  cargo  for  whomso- 
ever may  offer  it  for  transportation,  he  must  receipt  for  the  goods 
which  he  accepts  for  carriage  setting  forth  in  this  document 
the  rate  of  freight  and  the  terms  and  conditions  under  which  the 
property  will  be  carried.  This  receipt  is  called  the  bill  of  lading, 
which  in  its  many  forms  is  basically  a  document  older  by  far 
than  the  marine  insurance  policy  and  is  said  to  have  changed 
little  in  2000  years.  It  contains  a  mass  of  terms  and  conditions 
usually  printed  in  such  small  type  as  to  make  the  reading  of 
it  a  difficult  operation.  These  clauses  are  the  result  of  years  of 
legal  adjudication  and  have  been  added  to  from  time  to  time 


COMMERCIAL  GEOGRAPHY  53 

usually  in  an  effort  to  lessen  the  liability  of  the  ship  owner  or 
charterer.  It  may  be  said  as  a  general  proposition  that  the 
ordinary  bill  of  lading  is  so  worded  as  to  relieve  carriers  from  all 
obligations  except  those  which  the  law  insists  that  they  shall 
retain.  As  decisions  have  been  rendered  holding  carriers  liable 
for  this  or  that  risk  to  which  the  goods  may  be  subject,  the  car- 
riers have  so  far  as  law  permitted  inserted  new  words  adding  such 
risk  to  the  list  of  exceptions  contained  in  the  bill  of  lading.  In 
most  countries  water  carriers  have  been  relieved  by  statute 
of  many  of  their  common  law  obhgations,  whereas  land  carriers 
are  as  a  rule  still  held  to  a  high  degree  of  responsibility  for  prop- 
erty in  their  custody. 

Bill  of  Lading  a  Contract  of  Carriage. — The  bill  of  lading  is  the 
contract  of  carriage,  wherein  the  master  of  the  vessel  or  the  owner 
or  agent,  not  only  receipts  for  the  goods,  but  also  agrees  to  carry 
them  to  the  port  or  place  named  and  deliver  them  in  the  same 
condition  unless  prevented  by  one  or  more  of  the  long  list  of 
excepted  causes.  In  the  bill  of  lading  are  noted  the  marks  and 
numbers  of  the  packages  received,  they  being  receipted  for  in 
"apparent"  good  order.  If,  however,  any  unusual  condition  of 
the  package  be  observed,  as  moisture  or  breakage,  a  note  is  made 
of  this  to  prevent  claim  being  made  on  the  vessel  at  destination 
for  the  improper  condition  of  the  package.  The  document  also 
calls  for  delivery  to  some  named  individual  or  firm  or  the  goods 

may  be  consigned  simply  "to  order"  notify . 

The  bill  of  lading  thus  takes  on  the  character  of  a  quasi-negotiable 
instrument  and  by  endorsement  passes  title  to  the  property 
which  it  represents.  This  negotiability  is  necessary,  of  course,  if 
the  commercial  set  is  to  serve  its  purpose  in  trade. 

Liability  of  Carrier  Determined  by  Bill  of  Lading. — The  bill 
of  lading  serves  a  further  purpose  in  that  it  determines  the 
respective  responsibilities  of  the  carrier  and  the  shipper  and 
consignee,  enabling  the  owner  of  the  goods  to  arrange  insurance 
against  the  risks  excepted  in  the  bill  of  lading,  in  so  far  as  under- 
writers will  assume  liability  therefor.  In  early  forms  of  ''lad- 
ings" carriers  assumed  responsibility  for  practically  everything 
except  the  Acts  of  God,  the  Kings'  Enemies  and  Perils  of  the  Sea. 
Underwriters  generally  accepted  these  risks  so  that  the  owner 
of  the  goods  could  fully  protect  himself  against  all  habilities 


54  MARINE  INSURANCE 

other  tlian  the  minor  damages  excepted  in  insurance  policies. 
With  (ho  achling  of  oxcoptions  in  the  bill  of  lading  aiul  with  the 
unwilhiignoss  of  underwriters  to  assume  responsibility  for  all  the 
excepted  risks,  it  is  not  always  possible  at  the  present  time  for  a 
merchant  to  relieve  lumsclf  of  all  risks  to  which  the  goods  may  be 
subject  during  transportation. 

The  Manifest. — In  connection  with  the  bill  of  lading  may  be 
mentioned  the  manifest  which  is  a  ship's  document  giving  in 
brief  a  list  and  description  of  all  the  property  for  which  the 
vessel  has  issued  bills  of  lading,  showing  shippers  or  consignees' 
names  or  initials,  marks  and  numbers,  and  other  descriptive 
information.  This  document  is  of  great  value  in  determining 
whether  or  not  packages  of  goods  are  actually  on  board  a  vessel 
when  the  bill  of  lading  is  not  available.  Bills  of  ladings  are 
usually  issued  in  original,  duplicate  and  triplicate  and  several 
non-negotiable  copies  may  be  issued  if  required.  Additional 
copies  of  the  manifest  are  also  made,  so  that  in  the  event  of 
disaster,  particulars  of  the  vessel's  cargo  may  be  quickly  ob- 
tained. A  copy  of  the  manifest  is  also  lodged  in  the  custom 
house,  and  another  copy  is  on  board  the  vessel  to  present  to  the 
custom  or  port  authorities  at  the  port  of  destination. 

The  Marine  Insurance  Policy  or  Certificate. — The  marine 
insurance  policy  is  the  document  which  makes  possible  commer- 
cial transactions  on  a  basis  of  credit  rather  than  by  the  actual 
exchange  of  goods  or  money.  Marine  insurance  may  be  arranged 
specially  for  each  individual  transaction,  but  it  is  more  usual 
for  merchants  to  negotiate  in  advance  with  underwriters  for  a 
contract  which  will  protect  all  their  shipments  made  within  a 
specified  time  or  over  definitely  described  commercial  routes. 
These  contracts  are  known  as  open  policies,  and  the  assured  is 
usually  given  the  privilege  of  issuing  under  such  poUcies,  on 
specially  prepared  forms  embodying  the  salient  conditions  of  the 
insurance  policy,  certificates  of  insurance.  These  documents 
certify  that  there  has  been  insured  with  the  named  insurance 
company  in  the  name  of  the  assured,  so  many  packages  of  goods 
marke<l  and  numbered  as  indicated  in  the  margin  for  a  specified 
amount  of  money,  by  named  or  described  conveyances  from  the 
point  of  shipment  to  the  point  of  destination,  against  the  perils 
enumerated  therein  or  in  the  parent  policy  to  which  reference 


COMMERCIAL  GEOGRAPHY 


55 


Nb.e 729  _ 


CERTIFICATE   OF  THE 


$  25O0.Q*i_ 


J^etD  ^orh  Jflarinc  ilnsuraucc  VLompau]) 


OF   isfEW   YORK 


New  York,      FEBRUARY -15th.  1919. 


tCfjifi  is  to  Certify,  That 'on  the  28th  day  of    JAHDABY..  ._ 191  9.. 

there  was  insured  with  this  Company  under  Policy  No.  72312    for   ^ox  &  Co.,  (Abilene),  Tex. 

ilWBBTY'FIVB  IHOUSAIID     00/lQO-_- -.-.-:-.- ---^-: r_----Dollars 

on-------- 100---- — ---r--=-T_=.-_T:='.r_--  bales  of  Cotton  valued  at  sum  insured, 

per-TEZAS--&     PACIFIC  RAILWAY. ^ 

at  and  from   iBILEUB,   TEX. toJEW-OBlSANS  AUD  AT  iJJD 

_:IHEflia-  TO^LIVERPOOL^BHG. 


This  certificate  represents  and  takes  the  place  of  the  Policy,  and  conveys  all  the  rights  of  the  Original  Policy-holder 
purpoae  of  collecting  toy  loss  or  claims),  as  fully  as  if  the  property  «ere  covered  by  a  Special  Policy  direct  to  the  holder  of  this  Ce 
and  free  from  any  liability  for  unpaid  premiums. 

Loss,  if  any.  payable  to ^^    ^    Co.      

tt  order,  at  the  office  of      •DanKS   06   ^O.       _  London,  England  .upon  the  surrender  to  them  o(  this  Certificate,  computed  at  the 
fale  of  exchange  on  the  day  of  payment  and  when  so  paid  liability  under  this  insurance  is  discharged. 


To  p»y  particular  averai 
SErecd.  and  on  shipmcnli;  In 
Sfld  Salvage  Charges  payable 


Mherwise  specified  in  i 


K\lrs  S»  if  separfllelv  irwured,  i(  amounting  to  three  per  cent  ,  unless  olher 
;a  damage  pickings  claims  without  reference  to  series  or  amount  General  Ave 
retgn  biaicmcnt  or  pet  York-Antwerp  Rules    if  in  accordance  with  the  contrac 


the    United   Staui,   not   (or   any 

recoverable   hereunder.     Country   damage   is   not   cove 

points  in  the  United  Stales  or  Canada,  nor  to  ports  i 

Warranted  hy  the  awurcd  free  from  loss  or  eipc 


insurad  hereunder  Iff  £urop^.  Japan.  China,  India,  or  Manila,  subject  to 
laration,  in  ^iccordaoVt'  vith  customs  and  usages  at  the  port  of  destination 
I  of  this  company  but  no  claim  for  lou  of,  or  damage  to,  cotton  picked 
ost  or  cxnensc  in  respect  of  such  picking  or  reconditioning  slull  be 
and  freight "  shipments   nor  local  sales,  oor  on  shipments  to 


Me: 


.      leVt  o(  a  _ 
therein,  or  otherwi 


destruction, 

■  or  warlike 

belligerent 


Wan 


:lher  before  or  after  declaration  of  war;  and  whether    lawful  or  unlawju)  and  whether  by  thi 
nents  of   Mcedio^   or   revolting   slates,   or   by   unauthorized   or   U    ' 
port  of  dittreM  or  otherwise.     Also  warranted  not  to  abandon 
thereof,  but  in  the  event  of  blockade  to  bt  at  liberty  to  proceed  to  any  open 
red  that  the  property  be  warranted  by  the  assured  tree  from  any  charge,  damage  or  loss,  which  may  a 
j.iiTe  or  detention  for,  or  on  account  of  any  illicit  or  prohibited  trade,  or  any  trade  in  articles  contrab 
port  regulation      Also  warranted  free  of  loss  or  damage  caused  by  strikers,  locked  out  worki 

of  deviation  or  change  o(  voyage  within  the  Jimils  o(  this  policy, 
tier  approvc<]  steamers,  proviacd  notice  De  given  to  the  assurers  as  soon  as  known  to  the  assured, 
d  by  the  assured  that  they  will  not  rciicvc  any  carrier  or  other  badec  from  any  statutory  or  common  law  liab 

>hip.  corporatio 


contrary  to  the  Trading 

In  the  event   of  lou  or  damage  to 
;  oi  the  Company's  repr«scntstivcs  as 


he  Enemy  Act>'oi  other  «Utuics  or  prohibitions  of 'the  United' States  and/or  British  Govemmi: 
the  property   insured   hereunder.^  proofs  of  loss  will  be  aiitheoticated   on    spplicatior 


L  of  t 


i  certificate. 


I  which  by  endo 


•aaurcd.  the  risk  he 


Marks  and  Numbers 

TSR  100 


Not  valid  unless  countersigned  by  Cox  &   Co. 
Couttlersig7ied 


X^K3~ 


President. 


5(3  MARINE  INSURANCE 

is  luatle.  The  iiuportunt  point,  however,  in  the  present  connec- 
tion is  that  the  certificate  goes  on  to  state  that  loss,  if  anj-^,  is 
payable  to  X.Y.Z.  or  order  at  a  named  place  and  if  a  certificate 
is  payable  abroad  at  a  fixed  or  determinable  rate  of  exchange. 
This  document,  like  the  bill  of  lading,  thus  becomes  a  quasi- 
negotiable  instrument  and  becomes  available  to  the  holder  thereof 
to  whom  it  has  been  transferred  in  good  faith.  The  holder  of 
the  certificate,  however,  takes  the  document  subject  to  any 
liability  there  may  be  on  the  part  of  the  original  assured  for 
unpaid  premiums,  unless  inilccd  by  special  clause  in  the  cer- 
tificate the  underwriter  waives  his  claim  for  premium  against 
third  parties.  These  certificates  of  insurance  provide  for  pay- 
ment in  all  parts  of  the  commercial  world  and  when  issued  by 
responsible  underwriters  are  accepted  at  their  face  value  in  all 
the  banking  centers  of  the  world. 

The  Symbols  of  Ownership. — The  merchant  who  has  made  a 
shipment  of  goods  has  at  this  point  three  documents.  First  an 
invoice  showing  the  purchase  price  of  the  goods  sold.  Second  a 
bill  of  lading  indicating  that  the  goods  described  in  the  invoice 
have  been  shipped  and  are  in  the  possession  of  a  common  carrier 
on  their  vray  to  the  buyer.  Third,  an  insurance  certificate  certi- 
fying that  these  goods  are  insured  as  specified  against  the  perils 
of  transportation.  He  thus  has  parted  with  his  property  and 
has  in  place  thereof  certain  documents  which  will  entitle  him  or 
the  legal  holder  thereof  to  the  property  at  destination  or  in  the 
event  of  its  damage  or  loss  to  recompense  by  insurance.  This, 
however,  from  the  merchant's  point  of  view  is  but  one  of  many 
transactions  of  a  similar  nature  in  which  he  is  involved,  and  he  is 
primarily  interested  in  receiving  payment  for  the  goods  sold  and 
getting  out  of  the  transaction. 

The  Draft  or  Bill  of  Exchange. — When  making  a  contract  of 
sale  arrangements  are  made  between  buyer  and  seller  regarding 
the  method  and  terms  of  paj^ment.  In  overseas  trade  this  is 
usually  arranged  by  draft  payable  on  sight  or  a  definite  number  of 
days,  30,  60  or  90,  as  the  case  may  be,  after  sight  or  presentation 
of  the  draft,  accompanied  by  invoice,  bill  of  lading  and  insurance 
certificate.  The  seller  of  the  goods  has  banking  connections  who 
have  agreed  to  buy  his  drafts  or  to  accept  them  for  collection. 
The  merchant  accordingly  having  made  his  invoice,  obtained  the 


COMMERCIAL  GEOGRAPIIY  57 

bill  of  lading  and  insurance  certificate,  draws  a  draft  on  the 
purchaser  in  the  following  form : 

FIRST 
No.  1128 

£5000.  Abilene,  Tex.     Feb.  15,  1919. 

Thirty  days  after  sight  of  this  First  of  Exchange   (Second  Unpaid) 
Pay  to  the  order  of  COX  &  CO.  Five  Thousand  Pounds  SterUng,  vahie 
received  and  charge  same  to  account  of 
(100  Bales  Cotton  T  S  R). 

COX  &  CO. 
To— JAMES  TURNBULL  &  CO. 
London,  England. 

Endorsing  the  draft  in  blank  and  attaching  it  to  the  other  three 
documents,  the  bill  of  lading  and  insurance  certificate  having  been 
endorsed  in  blank,  he  presents  the  commercial  set  to  his  bankers 
who  put  the  draft  in  process  of  collection,  and  set  up  as  a  credit 
to  the  seller  the  whole  or  a  part  of  the  amount  for  which  the 
draft  is  drawn.  The  merchant  is  now  in  funds  and  is  practically 
out  of  the  transaction. 

Method  of  Collection  of  Draft. — The  process  of  the  collection 
of  this  draft  which  we  will  assume  represents  payment  for  a  ship- 
ment of  100  bales  of  cotton  marked  T  S  R  by  Cox  &  Co.  Abilene, 
Tex.,  to  James  Turnbull  &  Co.,  London,  England,  will  serve  to 
illustrate  how  an  overseas  shipment  is  made  and  financed  and  the 
important  part  marine  insurance  plays  in  these  transactions. 
The  Farmers  &  Merchants  Bank  at  Fort  Worth  with  whom 
Cox  &  Co.  do  their  banking  and  which  has  accepted  the  draft  for 
the  100  bales  of  cotton  is  merely  a  so-called  country  bank  and  does 
its  banking  with  a  larger  bank  at  New  Orleans  to  which  it-  passes 
on  this  commercial  paper,  and  in  turn  receives  credit  for  the 
amount  advanced.  The  New  Orleans  Bank  is  a  correspondent 
of  a  New  York  Bank  to  which  it  sends  this  commercial  paper  for 
collection  and  receives  credit  therefor  at  the  New  York  Bank- 
In  London  the  New  York  Bank  has  a  correspondent  to  which  it 
sends  the  documents  and  this  bank  sends  its  representative 
to  James  Turnbull  &  Co.  with  the  documents.  They  carefully 
examine  them  to  see  that  the  shipment  against  which  the  draft 
is  drawn  corresponds  with  the  contract  of  sale  into  which  they 


58  MARINE  INSURANCE 

have  entered  with  Cox  it  To.,  ;mil  if  it  does  they  write  across  the 
face  of  the  th-aft, 

Accepted  Mar.  15,  1919. 
Payable  at  Security  Bank. 

and  .sign  their  name.  Tlie  documents  which  are  the  symbols  of 
the  goods  are  retained  by  the  Ixitdc  which  presented  the  draft 
for  acceptance.  Assuming  that  the  bill  is  payable  30  days  after 
sight,  this  means  that  30  days  from  Mar.  15,  1919  or  on  April 
17,  1919,  three  days  of  grace  usually  being  granted,  the  holding 
bank  will  present  the  draft  at  the  Security  Bank  for  payment 
and  James  TurnbuU  &  Co.'s  account  will  be  charged  with  the 
amount  and  the  bill  of  lading,  insurance  certificate  and  invoice 
will  be  delivered  over  to  them.  If  James  Turnbull  &  Co.  so 
desire  they  may  discount  the  bill  when  presented  for  acceptance 
or  at  any  time  prior  to  the  due  date.  If  the  100  bales  of  cotton 
arrive  prior  to  the  due  date  they  will  probably  wish  to  discount 
the  bill  in  order  to  obtain  the  documents  and  so  obtain  delivery 
of  the  goods  upon  the  surrender  of  the  bill  of  lading.  The  draft 
having  been  actually  paid  by  James  Turnbull  &  Co.  the  trans- 
action is  completed  and  the  credits,  set  up  in  the  various  banks 
through  which  the  documents  have  passed,  are  confirmed. 
If  James  Turnbull  &  Co.'s  credit  is  high  the  shipping  documents 
may  be  surrendered  to  them  when  they  accept  the  draft. 

Trading  in  Bills  of  Exchange. — It  may  be  that  Cox  &  Co., 
instead  of  depositing  their  documents  with  theii'  local  bankers  at 
Abilene  will  send  them  on  to  New  York  City  to  some  bill  broker. 
These  bill  brokers  deal  in  commercial  paper,  just  as  stock  brokers 
deal  in  stocks  and  bonds.  If  Cox  &  Co.'s  financial  and  moral 
reputation  is  high  this  bill  broker  will  buy  their  commercial 
paper  at  the  prevailing  rate  for  exchange  on  London  and  they  will 
receive  credit  in  full  for  the  amount  of  the  draft  and  will  be  ab- 
solutely out  of  the  transaction,  except  under  their  liability  as  the 
drawer  and/or  endorser  of  the  bill  in  the  event  of  its  non-accept- 
ance by  the  drawee.  The  bill  broker  in  turn  sells  this  exchange 
to  a  bank  which  sends  the  draft  on  to  London  for  collection,  where 
the  process  of  acceptance  and  paj'ment  is  conducted  as  outlined 
above.  Bankers  in  buying  commercial  paper  carefully  examine 
the  documents,  paying  especial  attention  to  the  insurance  certi- 


COMMERCIAL  GEOGRAPHY  59 

ficate  to  see  that  it  is  in  proper  form  and  that  the  company  or 
underwriter  with  whom  the  insurance  is  placed  is  one  whose 
security  can  be  accepted  safely. 

Letters  of  Credit. — The  foregoing  description  of  the  use  of  the 
commercial  set  is  merely  an  outline  and  does  not  attempt  to  go 
into  the  details  of  these  transactions.  A  similar  process  is 
involved  when  shipments  are  made  under  letters  of  credit.  In 
such  cases  the  buyer  purchases  a  letter  of  credit  from  his  bank, 
by  virtue  of  which  there  is  established  in  some  foreign  banking 
center  a  fund  to  the  credit  of  the  buyer,  against  which  he  may 
authorize  the  seller  to  draw  drafts  for  goods  purchased  by  the 
buyer.  The  seller  draws  the  draft,  attaches  the  invoice  and  bill 
of  lading  thereto  and  presents  it  to  the  firm  or  bank  in  whose 
favor  the  letter  of  credit  is  issued.  They  accept  and  pay  the  draft 
charging  the  amount  so  paid  against  the  letter  of  credit.  In 
such  cases,  it  is  usual  for  the  buyer  to  have  an  open  policy  of 
insurance  payable  to  the  bank  issuing  the  letter  of  credit,  which 
covers  all  shipments  made  under  such  credit,  so  that  no  insur- 
ance certificate  is  attached  to  the  commercial  set.  The  invoice, 
however,  indicates  that  the  terms  of  sale  provide  for  buj^er's 
insurance  and  the  sale  is  one  made  on  cost  or  cost  and  freight 
terms  already  described. 

The  Balance  of  Trade. — These  transactions  in  theu'  various 
forms  establish  the  basis  of  international  trade  and  credit. 
Countless  in  number  it  will  readily  be  seen  that  there  are  always 
in  the  banking  centers  of  the  world  large  amounts  of  commercial 
paper  drawn  on  foreign  citizens  which  eventually  must  be  paid. 
The  large  banks  in  the  great  commercial  centers  of  the  world  run 
debit  and  credit  accounts  with  each  other,  a  New  York  bank 
crediting  itself  with  commercial  paper  which  it  sends  to  its 
London  correspondent  for  collection  and  debiting  itself  with 
paper  drawn  on  American  firms  sent  to  it  by  its  London  corre- 
spondent for  collection.  This  process  of  debiting  and  crediting 
will  continue  on  each  side  until  the  balance  of  trade  becomes  so 
much  in  favor  of  one  country  that  there  are  not  sufficient  credits 
held  by  all  bankers  in  that  country,  to  offset  the  debits  against 
the  bankers  in  another  country.  To  again  establish  the  financial 
equilibrium  it  is  necessary  for  the  debtor  nation  to  ship  gold  to 
the  creditor  nation  and  so  again  restore  the  balance  of  trade. 


{•)()  MARINE  INSURANCE 

lien;  a.naiii  iiKirine  in«uranco  is  called  into  aid,  for  without  iusur- 
aiu'c  till'  ji;ol(l  will  not  l»o  .shii)i)ed. 

Goods  the  Basis  of  Exchange.-  -It  must  not  he  isupposed  from 
this  general  description  of  the  process  of  financing  overseas  ship- 
ments, that  all  drafts  are  accompanied  by  shipping  documents. 
It  is  maintained,  however,  that  underlying  the  major  portion  of 
bills  of  exchange  there  is  the  buying  and  selling  of  goods  and  it  is 
because  of  the  existence  of  the  goods  and  of  the  negotiable  docu- 
ments which  represent  the  goods  that  the  transference  of  credits 
by  the  bill  of  exchange  or  draft  is  possible.  Banking,  transporta- 
tion and  insurance  are  a  trinity  so  closely  interwoven  one  with 
the  other  that  neither  is  of  much  use  dissociated  from  the  other 
two. 


CHAPTER  3 
SHIPS  AND  SHIPBUILDING 

A  Vessel  the  Basis  of  all  Marine  Insurance. — Every  marine 
insurance  transaction  involves  some  type  of  vessel.  Whether 
the  insurance  be  on  hull,  freight  or  cargo,  there  is  a  vessel  as  the 
base  of  the  insurance,  and  whether  the  risk  is  a  good  one  or  a  bad 
one  from  the  underwriting  point  of  view  depends  largely  on  the 
character  and  condition  of  the  vessel.  Marine  insurance  is 
general  in  its  application.  From  the  slow  man-propelled  canoe 
of  the  Indian  on  the  upper  reaches  of  the  Amazon  River,  up 
through  all  the  intermediate  stages  to  the  colossal  ocean  grey 
hound  driven  through  the  waves  at  a  tremendous  rate  of  speed 
by  the  propelling  power  of  the  latest  type  of  turbine  engine, 
marine  insurance  plays  its  part  in  assuming  the  hazards  of  naviga- 
tion and  in  distributing  losses  over  the  whole  consuming  public. 
It  therefore  becomes  essential  before  attempting  any  general 
discussion  of  the  principles  of  marine  insurance  to  obtain  some 
general  idea  of  vessels,  their  types,  their  structural  qualities  with 
respect  to  the  natural  forces  with  which  they  must  contend  and 
of  their  suitability  as  carriers  of  the  many  and  varied  commodities 
with  which  transportation  has  to  deal. 

Mediums  Used  in  Construction  of  Vessels. — Perhaps  the  best 
avenue  of  approach  to  this  subject  is  to  consider  first  the  mediums 
which  are  used  in  the  construction  of  vessels.  These  are  in 
general  four  in  number,  i.e.,  (1)  wood;  (2)  wood  and  metal  known 
as  composite  vessels;  (3)  metal  and  (4)  the  new  and  experimental 
medium  of  reinforced  concrete.  Vessels  may  again  be  considered 
from  the  viewpoint  of  their  propelling  power.  First,  of  course, 
we  find  the  man-propelled  vessel,  now  fast  disappearing  except 
among  the  most  primitive  tribes;  second,  vessels  propelled  by 
the  wind;  third,  those  whose  motive  power  is  purely  mechanical; 
fourth,  vessels  propelled  by  a  combination  of  wind  and  mechan- 
ical power  which  are  known  as  auxiliary  vessels,  and,  fifth,  vessels 
without  motive  power  such  as  harbor  barges. 
6  61 


62  MARINE  INSURANCE 

Wooden  Ships.  Difficulties  in  Construction. — Wood  was  llie 
original  inatorial  from  which  large  saihng  vessels  were  built. 
Tills  type  of  ship  may,  roughly,  be  divided  into  two  classes,  the 
s(}uarc  rigged  and  the  schooner  or  fore-and-aft  rigged  types. 
Among  (he  scjuare-riggcd  vessels  are  found  barks,  l)arkentines, 
brigs  and  full-rigged  ships,  each  named  from  its  special  type  of 
masts  and  sails,  and  each  possessing  its  peculiar  advantages  in 
connection  with  certain  routes  of  trade.  The  square-rigged  ves- 
sel has,  to  a  considerable  degree,  given  way  to  the  simpler  form  of 
fore-and-aft  rigged  schooner.  In  this  latter  type  it  is  less  difficult 
to  manipulate  the  sails.  Mechanical  power  is  frequently  used  in 
raising  and  lowering  the  sails  of  the  schooner  rigged  vessels,  thus 
materially  reducing  the  cost  of  operation.  The  schooner  type 
may  again  be  subdivided  into  classes  according  to  the  number  of 
masts  with  which  the  vessel  is  equipped,  the  rigging  of  the  vessel 
being  determined  to  a  large  extent  by  the  trade  for  which  it  is 
designed.  In  connection  with  the  construction  of  wooden 
vessels,  whether  for  sail  or  steam  power,  it  should  be  borne  in 
mind  that  beyond  a  certain  length,  say  200  feet,  it  becomes 
increasingly  difficult  to  so  fasten  the  parts  of  a  vessel  together  that 
it  will  l)e  a])le  to  withstand  the  severe  strains  to  which  it  will  be 
subjected  when  exposed  to  ocean  storms.  Furthermore  the  in- 
crease in  the  number  of  masts,  with  the  consequent  added  sail 
area,  or  the  enlargement  of  the  propelling  machinery  used  to 
develop  high  speed,  subject  the  vessel  to  unusual  stresses.  These 
stresses  have  so  strained  vessels  in  many  cases  that  seams  have 
opened  up  permitting  water  to  enter  and  damage  cargo  and  fre- 
quently have  caused  the  whole  hull  structure  to  be  thrown  out 
of  alignment.  This  is  particularly  the  case  when  vessels  con- 
structed for  a  certain  trade  are  transferred  to  more  difficult 
routes  for  which  they  are  not  designed. 

Green  Wood  and  Its  Effect. — Another  very  serious  difficulty 
encountered  at  the  present  time  in  the  construction  of  wooden 
vessels  is  that  of  green  wood.  The  imusual  demand  for  tonnage 
has  exhausted  the  supply  of  seasoned  wood  for  shipbuilding  pur- 
poses and  trees  are  being  felled,  saw^ed  into  shape  and  built  into 
the  structure  of  the  vessel  without  being  properly  cured.  This 
wood  being  green  will  gradually  dry  out,  shrink  and  open  up 
the  seams  of  the  vessel.     In  the  case  of  engine  driven  wooden 


SHIPS  AND  SHIPBUILDING  63 

vessels  this  gradual  shrinkage  may  so  weaken  the  vessel  that 
the  machinery  will  be  thrown  out  of  alignment,  causing  serious 
engine  trouble.  Then  again  before  the  war  wooden  shipbuilding 
had  become  more  or  less  of  a  lost  art  and  there  were  comparatively 
few  skilled  wooden  ship  carpenters.  The  combination  of  these 
physical  and  human  difficulties  has  resulted  in  a  number  of 
wooden  vessels  encountering  serious  difficulties  soon  after  they 
were  put  into  service. 

The  Fastenings  of  Wooden  Vessels. — Not  the  least  of  the 
problems  the  wooden  ship  builder  has  to  meet  is  that  of  fasten- 
ing the  various  component  parts  of  the  vessel  into  one  harmonious 
whole.  As  already  suggested  this  problem  becomes  more  diffi- 
cult as  the  length  of  the  vessel  is  increased  and  the  sail  or  engine 
equipment  enlarged.  The  amount  of  wind  pressure  exerted 
against  the  sails  of  a  five-  or  six-masted  vessel  is  enormous  even 
in  moderate  weather,  and  when  atmospheric  conditions  produce 
storms,  unless  such  vessels  have  sufficient  metal  and  wooden 
fastenings  (treenails)  something  will  give  under  the  strain  with 
consequent  loss  of  life  and  property.  Not  a  few  of  the  wooden 
vessels  launched  within  recent  months  have  after  their  first  trip 
been  returned  to  the  shipyards  for  the  insertion  of  additional 
material  and  the  refastening  of  the  whole  structure.  When  it  is 
remembered  that  every  additional  ton  in  the  weight  of  the  vessel 
itself  reduces  its  carrying  capacity  one  ton  with  a  consequent  loss 
of  earning  power,  a  motive  will  be  seen  for  light  construction. 

Composite  Ships. — During  the  decline  of  the  wooden  vessel 
in  the  second  half  of  the  nineteenth  century  and  before  the  metal 
ship  had  come  into  its  own,  there  were  produced  composite 
ships  built  partly  of  wood  and  partly  of  metal.  In  these  ves- 
sels the  usual  construction  called  for  a  metal  frame  work  and 
deck  beams  with  wooden  sheathing  and  decks.  Vessels  of  this 
type  of  construction  are  not  built  commercially  at  the  present 
time,  although  the  United  States  Government  included  a  few 
steamers  of  this  type  in  its  shipbuilding  program.  A  few  of 
the  old  composite  ships  are  still  operated  on  the  Great  Lakes 
and  here  and  there  vessels  of  this  type  will  still  be  found  in  active 
service. 

Steel  Vessels. — Steel  has  taken  the  leading  place  among  ship- 
building  materials.     When   metal   ships   were   first   introduced 


04  AfARINE  INSURANCE 

iron  was  used  almost  exclusively.  With  the  development  of  the 
iron  industry  and  the  production  of  new  forms  of  the  metal  it 
was  found  that  steel  lent  itself  more  readily  to  the  construction 
of  the  hull  itself  and  contained  qualities  which  offered  better 
resistance  and  accommodation  to  the  various  stresses  and  strains 
to  which  the  structure  was  subjected  when  the  vessel  was  in 
operation.  Iron,  however,  offers  more  resistance  to  the  corrosive 
action  of  sea  water  and  some  of  the  old  iron  sailing  ships  built 
thu'ty  or  forty  years  ago  are  still  in  service,  their  hulls  tight  and 
sound  after  their  long  and  arduous  careers.  England  was  the 
pioneer  nation  in  the  development  of  the  steel  vessel  and  it  is 
to  this  fact  that  her  leadership  in  the  overseas  carrying  trade  may, 
in  no  small  measure,  be  attributed. 

The  Marine  Engine. — The  construction  of  the  metal  vessels 
naturally  led  to  the  development  of  the  marine  engine.  Steamers 
have  been  in  operation  for  many  years,  the  side  or  stern  paddle 
wheel  type  of  engine  first  being  used.  This  system  of  propulsion 
was  not  well  adapted  to  the  severe  storms  encountered  on  the 
oceans,  and  the  screw  propeller  came  into  use.  Since  the  adop- 
tion of  this  method  of  applying  the  power  generated  by  the  en- 
gines, the  development  of  the  steamer  has  been  rather  one  of 
form  than  of  method.  How  great  this  progress  has  been,  will 
appear  from  a  comparison  of  the  first  Cunard  Liner  with  the 
modern  ocean  greyhound. 

Liners  and  Tramps. — ^Experience  quickly  revealed  defects 
both  in  hull  and  engine  construction  and  the  story  of  steel 
shipbuilding  is  one  of  constant  improvement.  Various  types 
of  construction  have  been  devised  to  meet  the  needs  of  the  vary- 
ing conditions  found  in  the  different  commercial  trades,  but  in  a 
very  general  way  steel  steam  vessels  may  be  grouped  under  two 
heads,  the  liner  and  the  tramp.  The  liner  is  designed  for  speed 
primarily,  the  tramp  for  utility.  The  modern  leviathan  would 
be  a  commercial  failure  were  the  traveling  public  not  willing  to 
pay  large  amounts  of  passage  money  for  the  extra  speed,  comfort 
and  luxury  which  these  steamers  afford.  So  much  room  is 
occupied  by  passenger,  engine  and  bunker  accommodation  that 
little  cargo  space  remains.  In  the  modern  tramp  steamer  on  the 
other  hand,  cargo  space  is  the  primary  object  and  speed  becomes 
a  secondary  consideration.     In  the  building  of  the  tramp  steamer, 


SHIPS  AND  SHIPBUILDING  65 

and  it  is  with  this  type  that  marine  insurance  in  chiefly  concerned, 
the  endeavor  is  to  produce  as  large  a  vessel  as  is  practicable, 
considering  the  routes  of  trade  for  which  it  is  designed,  the  size 
of  the  harbors  which  will  be  used  and  the  possibility  of  obtaining 
cargoes  sufficiently  large  to  occupy  the  cargo  space  provided. 
It  is  considerably  cheaper  to  build  one  large  tramp  steamer  than 
it  would  be  to  build  four  small  ones  of  equal  aggregate  carrying 
capacity.  It  is  also  much  cheaper  from  the  viewpoints  of  both 
fuel  and  crew  to  operate  the  large  vessel  than  it  would  be  to  operate 
the  four  small  ones.  However,  if  the  large  vessel  cannot  obtain 
full  cargoes  or  if  her  size  restricts  her  use  to  a  few  harbors  or  to  a 
few  trades  which  are  relatively  unprofitable,  the  vessel  will  be  a 
commercial  failure.  It  will  be  demonstrated  later  on  that  every 
additional  ton  of  weight  in  the  structure  of  the  vessel  itself  re- 
duces the  weight  of  the  cargo  to  be  carried  by  one  ton.  Hence, 
the  principal  consideration  in  the  building  of  the  tramp  or  cargo 
steamer  is  the  reduction  of  the  vessel  weight  to  the  point  where 
all  the  requirements  of  safety  have  been  met,  but  where  all 
unnecessary  parts  have  been  eliminated.  The  endeavor  is  also 
made  to  so  design  the  shape  of  the  vessel  that  the  maximum  of 
cargo  space  is  provided  with  the  minimum  retardation  of  speed. 
Longitudinal  Framing. — Perhaps  the  greatest  advance  in  this 
direction  in  recent  years  has  been  the  invention  of  a  practical 
system  of  longitudinal  framing.  This  system,  known  as  the 
"Isherwood  System"  after  the  name  of  the  inventor,  reduces  the 
weight  of  the  material  in  the  ship  itself  without  any  loss  of 
strength  and  at  the  same  time  increases  the  cargo  space.  Under 
the  older  system  of  transverse  framing,  the  frames  were  placed 
so  close  together  that  it  was  impossible  to  stow  the  ordinary 
cargo  in  between  them.  In  the  longitudinal  system,  the  trans- 
verse framing  is  replaced  bj^  great  transverse  bands  which  under- 
gird  the  body  of  the  vessel,  placed  at  intervals  of  twelve  to  twenty 
feet.  In  them  are  notches  in  which  are  set  longitudinal  frames 
to  which  the  steel  plating  is  riveted.  In  between  these  frames 
cargo  can  be  placed  against  the  side  of  the  ship  or  against 
the  cargo  battens,  thus  greatly  increasing  the  capacity  for  a  light 
cargo  such  as  cotton.  For  heavy  dense  cargoes  the  capacity  is 
also  increased  as  the  weight  of  the  vessel  itself  is  reduced.  This 
design  of  construction  has  lent  itself  successfully  to  all  types  of 


66  MARINE  INSURANCE 

tihipbiiilding,  botli  aail  and  steum  and  is  used,  not  only  in  tiic 
Iniilding  of  bulk  carriers  but  also  in  the  construction  of  liners. 

Bulk  Cargo  Carriers. — The  carrj'ing  of  bulk  cargoes  presents 
various  dillicullies  and  special  types  of  vessels  have  been  devised 
to  meet  the  peculiar  conditions  created  by  the  overseas  trade 
in  such  commodities.  The  tendency  of  grain  and  coal  cargoes 
to  shift  and  to  render  a  steamer  unstable  has  led  to  the  production 
of  so-called  self-trimming  steamers,  a  type  of  which  is  seen  in  the 
topside  tank  bulk  carriers.  The  carrying  of  petroleum  in  bulk 
has  produced  problems  which  are  successfully  met  in  the  modern 
tank  steamer.  On  the  other  hand  the  use  of  crude  oil  as  a  fuel  has 
created  new  problems  especially  from  the  underwriting  point  of 
view.  Fuel  oil  is  ordinarily  carried  in  the  ballast  tanks  or  the 
double  bottom  of  a  steamer.  If  the  vessel  grounds  and  injures 
her  ])ottom  so  that  repairs  must  be  made,  the  fuel  oil  is  necessarily 
drawn  out.  Before  mechanics  can  safely  enter  the  tanks,  how- 
ever, they  must  be  thoroughly  cleansed  and  a  chemical  test  made 
for  poisonous  gas.  This  process  is  one  entailing  great  expense 
and  only  recently  has  been  brought  to  the  attention  of  hull 
underwriters. 

The  Self -trimming  Vessel. — New  types  of  ships  are  produced 
in  an  endeavor  to  meet  special  needs.  Within  the  last  two 
years  a  self-trimming  ship,  equipped  with  small  unloading  ele- 
vators has  made  its  appearance.  This  is  an  entirel}'  new  type 
of  vessel  designed  to  afford  quick  despatch  in  the  unloading  of 
bulk  cargoes  of  grain,  ore,  or  coal.  Self  trimming  in  design, 
there  is  laid  at  the  bottom  of  the  ship  in  long  chambers  running 
the  length  of  the  vessel,  a  miniature  railway  on  which  run  small 
cars.  These  are  loaded  through  chutes  at  the  bottom  of  the 
holds,  and  are  drawn  to  the  elevator  wells.  They  are  then  lifted 
up  above  the  deck  and  their  contents  dumped  through  discharge 
pipes  into  receiving  barges  or  onto  the  discharging  dock.  This 
type  of  vessel  was  designed  by  the  Italians  and  the  first  vessel 
produced,  the  Str.  "Milazzo"  had  a  short  but  eventful  career. 
Loaded  with  a  general  cargo,  the  vessel  took  fire  in  her  cotton 
cargo,  the  fire  spreading  to  barrels  of  oil  in  the  bottom  of  the 
hold.  The  burning  oil,  floating  on  the  water  which  was  poured 
into  the  hold  to  extinguish  the  fire,  found  its  way  along  the  rail- 
way trunk  to  the  openings  into  adjoining  holds,  thus  communicat- 


SHIPS  AND  SHIPBUILDING  G7 

ing  the  fire  to  the  rest  of  the  ship.  The  fire  was  extinguished 
but  not  until  great  damage  was  done  and  after  temporary  rci)airs 
at  the  Azores,  the  ship  reached  her  Italian  port  of  destination, 
where  permanent  repairs  were  made.  But  ill-luck  pursued  her  for 
soon  after  reentering  commercial  service  she  was  sunk  by  a 
submarine.  The  case  of  the  Milazzo  is  especially  interesting 
from  the  point  of  view  of  marine  insurance  in  that  it  indicates 
how  new  types  of  vessels  produce  new  problems  and  create 
unsuspected  hazards  for  the  underwriter. 

Concrete  Ships. — Doubtless  the  most  interesting  experiment 
of  the  present  time  in  the  realm  of  shipbuilding  is  the  concrete 
ship.  Successfully  used  in  all  forms  of  construction,  reinforced 
concrete  is  now  being  experimented  with  as  a  medium  for  pro- 
ducing ocean  going  mechanically  propelled  vessels.  Its  sponsors 
claim  for  it  all  the  virtues  of  other  construction  materials,  and 
in  addition  point  out  the  ease,  speed  and  economy  of  building. 
Being  a  new  form  of  construction  it  will  have  to  live  down  the 
natural  prejudice  against  stone  vessels,  even  as  the  ship  built 
of  metal,  which  it  was  said  would  not  float,  had  to  overcome  the 
prejudice  of  seventy-five  years  ago.  Time  and  experience  alone 
will  prove  the  worth  of  this  form  of  construction.  Small  steam- 
ers and  harbor  boats  have  been  successfully  built  of  this  material 
and  are  in  practical  operation  in  Norway,  Holland,  England  and 
Italy. 

Lake  Vessels. — The  lake  type  of  vessel  is  worthy  of  notice, 
since  a  considerable  portion  of  American  marine  insurance 
premiums  are  derived  from  these  vessels  and  their  cargoes. 
Built  for  quick  loading  and  discharging,  with  many  large  hatches, 
and  with  engines  located  in  the  after  end  of  the  vessel,  a  dis- 
tinctive type  of  steamer  has  been  developed.  Operated  in  fresh 
water,  these  vessels  are  furnished,  in  many  cases,  with  fresh  water 
engine  equipment.  They  are  of  comparatively  light  construction 
as  they  do  not  encounter,  except  on  rare  occasions,  storms  of 
the  severity  of  those  experienced  on  the  oceans.  These  vessels 
are  admirably  adapted  for  their  particular  service,  but  when 
transferred  to  ocean  trade,  as  has  been  common  in  the  last  few 
years,  they  have  occasioned  much  loss  of  life  and  property. 
Only  by  the  rebuilding  and  refitting  of  these  vessels  can  they  be 
made  fit  for  ocean  trade,  and  even  then  they  are  suitable  for 


GS  MARINE  INSURANCE 

only  the  least  hazardous  coastwise  service.  The  distinction 
should  be  observed,  however,  between  steamers  built  for  lake 
service  and  lake-built  steamers  for  ocean  service.  Many  of  the 
Great  Lakes  shipbuilding  yards  are  now  producing  steamers 
suitable  in  all  i'es])ects  for  ocean  operation. 

River  and  Harbor  Craft.-  'J'hc  various  types  of  river  and 
harbor  craft  arc  worthy  of  notice  and  study.  Each  serves  a 
particular  purpose  and  produces  its  own  peculiar  problems. 
The  opening  of  the  new  Erie  canal  will  doubtless  produce  new 
types  of  ocean  going  barges  capable  of  carrying  bulk  cargoes 
down  the  lakes,  through  the  canal  and  up  and  down  the  coast 
without  breaking  bulk.  The  commercial  world  stands  on  the 
threshold  of  a  new  era  and  shipbuilding  in  America  occupies  no 
small  part  in  the  newly  awakened  commercial  life. 

Types  of  Marine  Engines. — The  motive  power  of  vessels  is 
also  worthy  of  study  by  those  who  would  be  proficient  in  marine 
insurance.  The  reciprocating  engine  has  given  way  in  part  to 
the  turbine  type,  and  now  with  the  perfecting  of  the  internal 
combustion  engine  there  has  been  opened  up  an  entirely  new 
field  of  power  design.  These  internal  combustion  engines  are 
being  adapted  to  use  in  the  largest  vessels,  with  a  resultant 
saving  in  cargo  space  and  economy  in  operation,  which  are  two 
factors  of  the  first  importance  in  profitable  ship  owning.  How- 
ever, as  with  all  other  new  devices,  the  marine  underwriter 
pays  dearly  for  his  experience.  While  the  new  forms  of  internal 
combustion  engines  maj^  be  mechanically  successful,  the  marine 
underwriter  has  discovered,  to  his  cost,  that  an  engineer  proficient 
in  the  operation  of  a  steam  engine,  may  be  a  failure  as  the  con- 
troller of  the  highly  sensitive  oil  engine.  Here,  again,  practice 
will  make  perfect  and  the  internal  combustion  engine  will  no 
doubt  emerge  from  its  experimental  stage,  a  practical  and  effi- 
cient marine  engine. 

Why  Does  a  Vessel  Float? — It  is  not  alone  desirable  that  some 
knowledge  of  the  types  of  vessels  be  had,  but  it  is  also  important 
that  at  least  a  theoretical  knowledge  be  acquired  of  the  natu- 
ral laws  which  make  it  possil)le  for  a  vessel,  built  of  a  material 
heavier  than  water  and  loaded  with  a  full  cargo,  to  float. 
AMicther  or  not  a  sliip  when  ready  for  sea  is  seaworthy  depends 
not  a  little  on  her  loading  and  stability.     How  much  cargo  a 


SHIPS  AND  SHIPBUILDING  69 

vessel  can  safely  carry  and  how  that  cargo  must  be  loaded  in  order 
to  produce  a  stable  ship  are  questions  which  involve  many  difficul- 
ties and  can  be  satisfactorily  answered  by  only  those  who  arc 
expert  in  such  matters.  But  underwriters  and  shippers  may 
obtain  some  idea  of  the  underlying  principles  of  these  subjects, 
sufficient  at  least  to  enable  them  to  ask  intelligent  questions  of 
experts. 

Displacement. — Displacement  is  the  name  given  to  the  actual 
weight  of  the  ship  when  empty  or  of  the  ship,  its  stores  and  cargo 
when  the  vessel  is  fully  loaded.  It  is  measured  by  determining 
the  weight  of  the  mass  of  water  displaced  by  the  floating  vessel, 
measured  in  cubic  feet  or  in  tons.  A  cubic  foot  of  salt  water 
weighs  64  pounds,  thus  thirty-five  cubic  feet  exactly  equal  one 
long  ton  of  2240  pounds.  It  can  be  practically  demonstrated  that 
a  tin  watertight  box  one  foot  long,  one  foot  wide  and  one  foot 
high,  measuring  exactly  one  cubic  foot  and  weighing  one 
pound  will  float  on  the  water.  If,  however,  sixty-two  pounds 
of  weight  are  put  in  the  box,  it  will  almost  submerge.  If  one 
pound  more  is  added,  making  a  total  weight  of  64  pounds  the 
box  will  submerge.  The  slightest  additional  weight  will  cause 
the  box  to  sink.  The  amount  of  water  displaced  by  this  sub- 
merged box  is  one  cubic  foot,  and  as  its  total  weight  is  64  pounds, 
it  is  fairly  demonstrated  that  the  displaced  water  also  weighs  64 
pounds.  The  same  fact  could  be  proved  by  actually  weighing 
one  cubic  foot  of  seawater.  This  being  so,  if  the  exact  quantity 
of  the  water  displaced  by  the  ship  could  be  measured  in  cubic 
feet  and  divided  by  35  the  weight  of  the  ship  in  tons  would  be 
obtained.  The  formula  for  obtaining  this  weight  or  the  dis- 
placement in  tons  is  therefore. 

Length  X  Breadth  X  Immersed  Depth  (Draft) 
35 

Displacement  Curve. — In  the  case  of  a  cubical  box  as  used  in 
the  foregoing  illustration  the  application  of  the  formula  is  a 
simple  matter,  but  in  the  case  of  an  irregular  object  such  as  a 
ship  the  figuring  of  displacement  introduces  many  complications. 
To  facilitate  this  process  there  has  been  devised  what  is  known  as 
a  "Displacement  Curve"  specially  designed  for  each  vessel  which 
enables  one  to  read  off  the  displacement  when  the  draft  is  known. 


70  MARINE  INSURANCE 

A  tlcUiilcd  explanation  of  how  this  curve  is  desiti;n(;tl  may  be  found 
in  " Know  Your  Own  Ship"  by  Thomas  Walton.  The  impor- 
tance of  this  ability  to  measure  the  weight  of  a  vessel  becomes 
apparent  in  the  loading  and  discharging  of  cargo.  The  weight 
of  a  vessel  being  known  in  an  unloaded  condition  from  the  dis- 
placement shown  at  that  point  in  the  "  Displacement  Curve," 
every  inch  increase  in  draft  will  indicate  the  number  of  tons 
weight  loaded.  Likewise,  in  the  discharge  of  cargo  or  in  the  burn- 
ing of  fuel  each  inch  decrease  in  draft  will  indicate  the  weight  of 
cargo  discharged  or  of  fuel  consumed.  The  difference  between 
the  displacement  of  a  vessel  when  light  (unloaded)  and  the  dis- 
placement full}'  loaded  is  the  dead  weight  capacity.  It  will, 
of  course,  be  noted  in  this  connection,  that  if  the  "Displacement 
Curve"  is  figured  on  the  basis  of  sea  water  which  offers  a  buoy- 
ancy of  64  pounds  to  the  cubic  foot,  allowance  must  be  made  in 
the  case  of  a  vessel  lying  in  a  fresh  water  river  where  the  buoyancy 
of  the  water  will  only  be  G2  }'^  pounds  to  the  cubic  foot. 

When  Will  a  Vessel  Float?  Buoyancy. — The  question  is 
naturally  raised.  What  is  buoyancy?  and  why  does  a  vessel  float? 
lUioyancy  is  the  power  to  float.  A  vessel  will  float  when  its 
enclosed  watertight  volume  is  greater  than  its  total  weight 
(displacement)  in  tons  multiplied  by  35.  The  supporting  pres- 
sure of  water  is  all  exerted  vertically  or  obliquelj'-  and  increases 
in  proportion  to  the  depth.  At  one  foot  depth  there  is  G4  pounds 
pressm-e  to  the  square  foot,  at  two  feet  depth  there  is  128  pounds 
pressure  to  the  square  foot  and  so  on.  The  pressure  exerted 
horizontally  is  just  as  great  proportionately,  but  has  no  lifting 
power.  Thus  in  the  illustration  of  the  cubical  tin  box  cited  above, 
which  was  watertight  and  weighed  one  pound,  it  appeared  that 
with  62  pounds  weight  therein  the  box  would  just  float,  but  if  more 
than  one  pound  were  added  the  box  would  sink.  It  should  also 
1)6  noted  that  once  having  become  submerged  the  box  would  con- 
tinue to  sink  until  it  rested  on  the  water  bed,  the  increased  lifting 
power  at  the  lower  depth  being  exactly  offset  by  the  downward 
pressure  exerted  by  the  weight  of  water  above  the  box.  Thus 
appljdng  the  same  ])i-inci])le  to  a  ship,  it  will  float  up  to  the  point 
where  its  own  weight,  plus  the  dead  weight  contained  in  it, 
multiplied  by  35  equals  its  enclosed  watertight  volume  meas- 
ured in  cubic  feet.     Of  course,  a  vessel  so  loaded  would  not  be 


SHIPS  AND  SHIPBUILDING 


71 


seaworthy,  because  the  least  additional  weight  as  that  of  a  wave 
breaking  on  the  deck,  would  cause  the  vessel  to  sink  and  it  would 
continue  to  sink  until  it  rested  on  the  ocean  bed.  For  safety, 
it  is  essential  that  a  considerable  portion,  say  twenty-five  percent, 
of  her  total  dead-weight  capacity  be  not  used  in  order  to  provide 
a  margin  of  safety,  known  as  reserve  buoyancy. 

Free-board  and  Load  Lines. — This  naturally  leads  to  a  con- 
sideration of  free-board  and  load  lines.  The  free-board  of  a 
vessel  is  the  distance  measured  at  the  middle  of  the  length  of  the 
ship  from  the  top  of  the  main  or  upper  fully  enclosed  deck  to  the 


H 


statutory  Deck  Line 
Top  of  Deck  al  Side 


...1. 


Elevation 
Steel  Ship 


water  line.  The  free-board  is  the  measure  of  the  reserve  buoy- 
ancy of  the  vessel.  How  great  the  free-board  in  any  given  ship 
should  be  is  a  matter  of  very  careful  measurement  depending  on 
its  design  and  structural  strength,  and  of  the  trade  for  which 
it  is  intended.  Several  foreign  nations  have  prescribed  definite 
rules  for  the  calculation  of  free-board  and  require  that  vessels 
under  their  flags  have  a  definite  load  hne  assigned.  Credit  for 
load  hne  legislation  rightfully  belongs  to  Samuel  Plimsoll,  an 
Enghshman,  who  after  much  educational  work,  impressed  on  the 
members  of  the  English  parliament  that  vessels  were  putting  to 
sea  dangerously  loaded  with  consequent  loss  of  life  and  property. 
Legislation  was  finally  passed  providing  that  all  British  vessels 
over  a  certain  size  should  be  measured  for  free-board  and  a 


72  MARINE  INSURANCE 

mark,  now  known  as  the  "PlinisoU  Mark"  cut  in  and  painted  on 
the  side  of  each  vessel  at  the  middle  of  its  lenj^th. 

The  Plimsoll  Mark.— The  "Plimsoll  Mark"  by  the  terms  of 
the  Act  may  be  assigned  by  the  Classification  Societies  such  as 
Lloyd's,  British  Corporation  or  the  Bureau  Veritas  and  consists 
of  two  symbols  as  indicated  in  the  accompanying  diagram. 
All  British  ships,  within  the  law,  carry  the  disk  as  the  mark  in 
the  left  is  known,  and  if  loaded  so  that  the  horizontal  line  is 
submerged  are  overloaded  and  sailors  are  relieved  of  their 
obligation  to  sail  with  such  a  vessel.  If  a  ship  is  to  be  engaged 
in  ocean  or  world-wide  trade  she  may  also  carry  the  second  symbol 
or  the  gridiron.  This  mark  indicates  five  different  permissible 
load  lines.  The  upper  prong  extending  to  the  left  and  marked 
F.W.  shows  the  depth  to  which  the  vessel  may  be  loaded  in  a 
fresh  water  river,  the  increased  buoyancy  of  the  denser  ocean 
water,  lifting  the  vessel  to  the  salt  water  marks  shown  on  the 
right  of  the  gridiron.  These  four  prongs  are  marked  /.*S.  or 
Indian  Summer  the  depth  to  which  the  vessel  may  load  during  the 
good  season  of  weather  on  the  run  between  Suez  and  Singapore, 
S.  or  the  summer  load  line,  W.  the  winter  load  line,  October 
to  March  both  included,  and  W.N.A.  a  line  allowing  increased 
margin  of  safety  for  vessels  operating  in  the  North  Atlantic 
during  the  boisterous  winter  season. 

The  Advantages  of  a  Load-line  Law. — The  load-line  law  of  Great 
Britain  does  not  necessarily  prevent  British  vessels  from  being 
overloaded,  but  the  law  has  the  great  advantage  of  permitting 
British  sailors  to  appeal  to  the  British  Consul  and  be  relieved 
from  sailing  with  a  ship  that  is  overloaded.  The  United  States 
Shipping  Board  is  having  the  "Plimsoll  Mark"  cut  into  steamers 
that  are  being  built  in  this  country  for  its  account.  There 
is  up  to  the  present  no  load-line  legislation  requiring  that  ships 
under  the  American  flag  have  a  fixed  load  line,  although  such 
a  bill  is  now  before  Congress.  It  would  seem  fitting  that  since 
vast  amounts  of  American  capital  both  private  and  public 
are  being  invested  in  the  upbuilding  of  our  Merchant  Marine, 
that  a  load-line  law  should  be  passed,  not  only  for  the  protection 
of  American  sailors  and  passengers  on  American  ships,  but  also 
for  the  conservation  of  American  tonnage,  which  may  readily  be 
lost  through  improper  loading. 


SHIPS  AND  SHIPBUILDING 


73 


Stability.     The    Centers    of    Buoyancy    and    Gravity. — The 

seaworthiness  of  a  vessel  does  not  depend  altogether  on  the  depth 
to  which  it  is  loaded.  The  stability  of  the  vessel  is  of  equal 
importance.  Stability  may  be  defined  as  the  ability  of  a  vessel 
to  retain  or  regain  a  position  of  equilibrium.  This  ability  de- 
pends on  the  design  and  loading  of  the  vessel.  In  the  considera- 
tion of  the  watertight  tin  box  weighing  one  pound  and  containing 
one  cubic  foot  of  watertight  space,  it  was  observed  that  any  weight 
greater  than  63  pounds  sank  the  box.  The  cause  of  the  sinking 
was  that  two  forces,  that  of  buoyancy  and  that  of  gravity  had  first 
become  neutralized  and  then  ])y  the  addition  of  the  last  pound  of 
weight  the  force  of  gravity  had  overcome  the  force  of  buoyancy. 


Fig.  1 


The  forces  of  buoyancy  meet  at  a  point  within  a  ship  called  the 
center  of  buoyancy.  Where  the  forces  of  gravity  meet  is  known 
as  the  center  of  gravity.  If  these  two  centers  are  in  the  same 
vertical  plane  the  vessel  will  be  in  a  state  of  equiHbrium,  the  forces 
of  gravity  being  exerted  downward  directly  against  the  forces  of 
buoyancy  which  are  exerted  upward.  The  stability  of  the  vessel 
depends  on  the  relative  positions  of  the  two  centere.  The  fact 
that  these  two  forces  are  opposed  one  to  the  other,  counter- 
balancing each  other,  explains  why  a  vessel  rests  after  rolling  or 
pitching. 

Why  a  Vessel  Rights  after  Rolling. — The  action  of  buoyancy 
and  gravity  is  illustrated  in  the  above  figures.  The  position  of 
a  vessel  when  in  a  state  of  rest  is  indicated  in  Figure  1  which 
shows  the   cross  section  of  a  vessel.     WL  is  the  waterline,  the 


74  MARINE  INSURANCE 

point  G  the  center  of  gravity,  and  the  point  B  the  center  of 
buoj-ancy,  the  dotted  line  XY  showing  the  median  line  of  the 
cross  section,  indicating  that  the  two  centers  are  in  the  same 
vertical  plane.  Figure  2  shows  the  same  cross  section,  the  vessel 
having  rolled  with  a  wave.  It  will  be  observed  that  the  center 
of  gravity  G  remains  stationaiy,  provided  the  cargo  does  not 
shift,  while  the  center  of  buoyancy  B  moves  over  toward  the 
heeling  of  the  ship.  This  center  moves  because  the  immersed 
jiortion  of  the  ship,  that  part  below  the  new  waterline  W'L'  is 
of  a  different  shape  from  the  immersed  portion  in  Figure  1,  that 
part  below  the  waterline  WL,  and  the  center  of  buoyancy 
naturally  is  found  where  the  forces  of  buoyancy  meet  in  this  new 
shape.  The  effect  of  the  moving  of  the  center  of  buoyancy  is  to 
throw  out  of  line  the  center  of  the  force  of  gravity  G,  and  the 
center  of  the  force  of  buo3^ancy  B,  thus  creating  a  lever  of 
stability  indicated  by  the  line  GZ  in  Figure  2.  This  lever  act- 
ing with  a  force  measured  in  foot  tons  equivalent  to  the  weight  of 
the  ship  and  its  cargo  in  tons  (displacement)  multiplied  by  the 
length  of  the  lever  in  feet,  is  exerted  to  draw  the  ship  back  to 
its  original  position. 

The  Law  of  Inertia. — Of  course,  at  this  point  the  law  of  inertia 
enters.  The  tendency  of  the  vessel  is  to  continue  to  roll  in 
the  opposite  du'ection  until  by  the  shifting  of  the  center  of 
buoyancy  toward  the  new  heeling  of  the  ship,  another  lever  is 
created,  which  pulls  the  ship  back  again.  This  movement  will 
continue  until  the  friction  of  the  air  and  the  water  counteracts 
the  force  of  the  lever  and  the  vessel  will  again  come  to  a  state  of 
rest  as  in  Figure  1. 

Shifted  Cargoes. — In  the  loading  of  bulk  cargoes  such  as  grain, 
coal,  ore  or  bulk  oil  great  care  is  used  to  prevent  the  shifting 
of  the  cargoes  during  the  rolling  to  which  a  vessel  is  subjected. 
If  a  cargo  such  as  grain  does  shift  with  the  rolling  of  the  vessel 
the  center  of  gravity  will  shift  tow^ard  the  heeling  of  the  ship, 
and  the  vessel  will  right  herself  with  a  shortened  lever  of  stability, 
only  to  the  point  where  the  two  centers  G  and  B  are  again  in  the 
same  vertical  plane.  This  will  not  of  course  be  in  the  median 
line  of  the  cross  section  but  to  one  side  of  it,  and  the  vessel  will 
float  with  a  list.  In  this  position  when  bufTetted  by  wind  and 
wave  the  vessel  will  regain  her  listed  position  if  no  further  cargo 


SHIPS  AND  SHIPBUILDING  75 

shift  takes  place,  but  if  the  cargo  shifts  further  the  righting  lever 
GZ  may  become  so  short  as  to  be  powerless  and  the  vessel  will 
capsize. 

The  Meta-center.  Stiff  and  Tender  Vessels. — Again  referring 
to  Figure  2  it  will  be  noticed  that  the  vertical  line  drawn  through 
the  new  center  of  buoyancy  B  intersects  the  medium  line  XY  at 
a  point  M.  If  the  roll  of  the  vessel  does  not  exceed  say  fifteen 
degrees  this  point  will  remain  the  same  for  all  rolling  less  than 
fifteen  degrees,  because  the  wedges  WOW  and  LOL'  are  equal  in 
size  and  really  sectors  of  a  great  circle  and  their  centers  of  gravity 
when  the  wedges  are  small,  are  practically  equal  distances  from 
the  vertical  line  through  the  center  of  buoyancy.  It  is  the  posi- 
tion of  this  point  M,  with  respect  to  the  center  of  gravity  G, 
that  is  the  controlling  factor  in  the  stability  of  a  vessel.  The 
point  M  is  known  as  the  meta-center  and  the  distance  between 
the  point  M  and  the  center  of  gravity  G  the  meta-center  height. 
If  this  distance  is  great  the  vessel  is  said  to  be  stiff,  the  length 
of  the  lever  GZ  will  be  long  and  the  vessel  will  roll  back  quickly. 
If  the  meta-center  height  is  short,  the  lever  GZ  will  be  short  and 
the  vessel  will  roll  back  slowly  and  is  said  to  be  tender.  It  is 
apparent,  therefore,  that  if  a  vessel  is  stiff  and  rolls  back  quickly, 
the  shock  to  the  structure  of  the  vessel  is  exceedingly  great.  In 
the  case  of  sailing  vessels  when  the  meta-center  height  is  very 
great,  owing  to  the  low  center  of  gravity,  the  quick  return  from  a 
roll  has  frequently  resulted  in  the  snapping  off  of  the  masts. 
On  the  other  hand  a  tender  vessel  in  heavy  weather  owing  to 
her  slow  righting  power  may  suffer  greatly  or  in  extreme  cases 
may  capsize. 

The  Control  of  Meta-center  Height. — As  the  meta-center 
height  is  the  important  factor  in  the  stability  of  vessels  it  is 
necessary  to  know  how  to  regulate  this  height.  This  is  done 
in  two  ways:  first,  by  constructing  vessels  with  sufficient  breadth 
of  beam,  which  has  the  effect  of  lowering  the  meta-center,  and 
thus  decreases  the  meta-center  height;  second,  by  so  stowing  the 
cargo  that  the  weight  is  well  distributed  and  the  center  of  gravity 
properly  placed.  The  business  of  stowing  cargo,  known  as 
stevedoring  is  an  art  in  itself.  The  question  of  stowage  is 
important  in  all  cases,  but  requires  unusual  attention  in  the 
case  of  a  very  light  cargo  such  as  cotton,  or  a  very  heavy  cargo 


70  MARINE  INSURANCE 

such  as  nitrate.  In  the  former  case  it  is  necessary  to  stow  heavy 
(Icad-woij^ht  carfi;o  such  as  steel  or  spelter  in  the  bottom  of  the 
holds  to  lower  the  center  of  gravity  and  prevent  tenderness.  In 
the  case  of  heavy  cargoes  it  is  essential  that  the  cargo  be  well 
distributed  in  the  middle  of  the  ship  and  built  up  high  in  bins 
if  necessary,  in  order  to  raise  the  center  of  gravity  and  prevent 
stiffness. 

Loading  Problems. — It  will  also  be  observed  that  in  the  case 
of  coal-  or  oil-burning  vessels,  as  the  fuel  is  consumed  the  position 
of  the  center  of  gravity  may  change  and  may  shift  to  one  side  if 
the  fuel  is  not  evenly  consumed,  thus  greatly  affecting  the  stabil- 
ity of  a  ship  that  has  little  margin  of  safety  through  excessive 
loading  under  and  on  deck.  The  disregard  of  these  various 
factors  results  in  marine  losses  for  which  underwriters  are 
called  upon  to  respond,  and  some  slight  knowledge  of  the 
principles  underlying  them  is  essential  for  all  interested  in  mari- 
time affairs.  The  present  work  can  merely  mention  these 
questions  without  fully  considering  them,  but  a  very  complete 
discussion  of  these  and  other  kindred  problems  may  be  found  in 
"Know  Your  Own  Ship"  by  Thomas  Walton. 


CHAPTER  4 
THE  SHIP  AS  A  CARGO  CARRIER 

Stresses  and  Strains. — While  the  marine  underwriter  does  not 
pretend  to  be  a  shipbuilder,  yet  it  is  essential  that  he  have  more 
than  a  theoretical  knowledge  of  the  construction  of  ships.  The 
underwriter  relies  to  a  great  extent  on  the  information  given 
in  coded  form  in  the  books  of  the  various  classification  societies 
under  whose  supervision  most  vessels  are  built.  These  societies 
certify  by  granting  a  Class  that  the  particular  vessel  when 
classified  is  properly  built,  especially  with  respect  to  structural 
strength,  for  the  trade  and  service  for  which  it  has  been  designed. 
Without  some  underlying  knowledge  of  the  problems  involved  in 
shipbuilding  these  classification  books  will  be  unintelligible  and 
may  lead  both  merchant  and  underwriter  into  error.  The 
consideration  of  the  classification  societies  and  their  books  will 
be  passed  for  the  moment,  while  attention  is  directed  to  the 
stresses  and  strains  to  which  a  vessel  in  operation  is  subjected. 
It  is  to  withstand  these  that  vessels  are  designed.  As  already 
indicated,  ships  are  built  to  earn  freight  money,  and  having  a 
limited  amount  of  buoyancy,  each  additional  ton  of  weight  in  the 
ship  structure  itself,  reduces  the  dead  weight  capacity  one  ton. 
Herein  lies  the  danger  to  passenger,  shipper  and  underwriter. 
Vessel  owners  naturally  wish  to  make  their  vessels  as  light  in 
weight  as  possible,  and  were  it  not  for  stringent  rules  of  classifi- 
cation societies,  the  dangers  of  travel  by  sea  would  be  increased 
for  passenger,  crew  and  cargo. 

The  Strain  of  Unequal  Weights. — If  an  unloaded  steamer  could 
be  divided  into  five  sections  as  in  figure  1,  each  of  exactly  the 
same  weight,  it  would  be  found  that  the  supporting  surfaces  of 
these  sections  would  be  unequal  in  size.  That  is,  the  section 
containing  the  machinery  would  be  smaller  than  that  comprising 
one  of  the  holds,  although  both  sections  would  be  equal  in  weight 
and  when  immersed  in  water  each  would  displace  the  same 
volume  as  was  demonstrated  in  the  consideration  of  displace- 
7  77 


7S 


MARINE  IXSIIRANCE 


iiHMit.  'Huicfoic,  (lifTcront  sections  of  the  steamer  would  sink 
to  (lillereiit  ilcptlis  in  tlie  water  as  shown  in  fijj;ure  2.  However, 
tlu<  .steamer  is  not  in  five  separate  pieces,  but  is  one  inscsparable 
wliole.  While  the  total  weight  is  supported  by  the  total  volume 
of  water  displaced,  nevertheless  the  i>ressure  is  greatest  at  those 
points  where  a  greater  weight  is  contained  in  a  less  volume  of 
sj^ice.  The  steamer  must,  therefore,  be  constructed  to  take  up 
the  strain  caused  by  this  unequal  distri])ution  of  weight.  Part  of 
this  strain  is  taken  up  when  the  vessel  is  laden  with  her  cargo, 
because  with  careful  stevedoring  the  weight  of  the  steamer  and 
her  cargo  can  be  fairly  evenly  distril)uted  over  the  entire  length 


Fig.  2. 


of  the  ship.  As  steamers  are  quite  often  light  and  sometimes 
make  considerable  trips  in  ballast,  this  particular  condition  must 
be  compensated  for  in  the  ship  structin-es. 

Strain  of  Lateral  Pressure  and  of  Wave  Action. — A  vessel  is 
also  sul)jected  to  strain  caused  by  the  lateral  pressure  of  water, 
it  being  remembered  that  the  pressure  exerted  at  right  angles  to 
the  submerged  surface  of  a  vessel  in  a  horizontal  direction  is 
equal  to  the  pressure  exerted  vertically  or  obliquely  against  its 
bottom.  The  greater  the  draft  of  the  vessel  the  greater  this 
crusliing  pressure  becomes  since  the  whole  tendency  of  the  dis- 
placed water  is  to  regain  its  former  place.  Then  again  vessels 
must  be  built  to  withstand  the  strain  of  riding  the  waves.  They 
should  be  so  constructed  that  they  are  at  least  twice  the  length 


THE  SHIP  AS  A  CARGO  CARRIER  79 

of  the  average  wave  which  they  will  encounter.  If  a  vessel  is 
caught  on  the  crest  of  a  wave  so  that  her  bow  and  stern  are  out 
of  water,  she  has  a  tendency  to  bend  or  break  at  the  point 
of  support.  Quite  often  vessels  are  seen  which  are  hogged  as  it 
is  called,  caused  by  structural  weakness  appearing  when  the 
vessel  was  so  caught  on  a  wave.  On  the  other  hand  if  the  bow 
and  stern  of  a  vessel  are  each  resting  on  the  crest  of  a  wave  while 
the  center  of  the  ship  has  but  little  water  under  it,  there  is  a 
tendency  for  the  vessel  to  sag  at  the  middle  and  possibly  to 
break  at  this  point.  Either  one  of  these  causes  was  doubtless 
the  reason  for  the  loss  of  the  tank  steamer  Oklahoma  some  years 
ago.  The  experience  gained  by  disasters  occurring  to  vessels 
through  the  effect  of  the  various  kinds  of  strains,  has  led  to  im- 
proved types  designed  to  meet  with  safety  such  stresses  and 
strains. 

Panting  Strains. — Another  strain  that  vessels  must  be  con- 
structed to  withstand,  is  the  pressure  against  the  bow  of  the  ship 
as  it  rushes  through  the  water  or  as  it  plunges  up  and  down 
in  riding  the  waves.  This  causes  what  is  known  as  panting  strains, 
the  tendency  of  the  shell  of  the  vessel  being  to  work  in  and  out  as 
it  passes  through  the  water.  Then  there  are  the  strains  caused  by 
the  vibration  due  to  the  propelling  machinery  of  the  vessel.  In 
the  case  of  sailing  vessels  peculiar  stresses  are  encountered  due 
to  the  power  of  the  wind  on  the  sail  surface.  In  the  cases  of 
auxiliary  sail  vessels,  a  combination  of  engine  strain  and  wind 
strain  is  encountered  necessitating  especialty  strong  construc- 
tion in  this  type  of  vessel. 

Other  Strains. — Shipbuilders  must  also  counteract  the  strains 
caused  by  the  heavy  permanent  weights  carried  on  the  deck,  such 
as  the  winches  and,  if  necessary,  guns  carried  as  a  means  of  defense 
against  the  enemy.  The  shock  caused  by  the  firing  of  these 
guns  also  produces  unlooked-for  results,  as  in  a  recent  case  where 
the  gun  practice  on  a  merchant  ship  developed  a  crack  in  the 
stern  frame.  It  is  also  customary  in  some  trades  to  carry  hea\^ 
deck  loads  and  this  added  pressure  must  be  compensated  for  as 
well  as  the  enormous  strain  on  the  deck  caused  by  the  shipping 
of  heavy  seas.  It  is  also  necessary  from  time  to  time  that  vessels 
be  put  on  dry  dock  for  repairs  and  cleaning.  In  such  cases  the 
vessel  is  subjected  to  unusual  strains,  the  ordinary  support  of 


80  MARI.WE  INSURANCE 

tlic  vessel  being  removed,  all  the  weight  being  carried  at  a  few 
supporting  points.  Vessels  must  be  so  constructed  that  they 
can  withstand  this  unusual  condition. 

Vessels  in  Ballast.~In  the  underwriting  of  the  hulls  of  tramp 
steamers  it  must  be  remembered  that  oftentimes  these  vessels, 
in  order  to  secure  cargoes,  make  long  voyages  in  ballast,  that  is 
without  cargo,  but  with  a  certain  amount  of  dead-weight  load 
or  ballast  sufficient  to  submerge  the  vessel  to  a  reasonal)le  depth. 
Usually  in  the  case  of  steamers  in  ballast,  the  propeller  blades 
are  not  fully  humersed  and  the  working  of  the  propeller  partly 
in  tlie  water  and  partly  out  necessarily  causes  unusual  strain 
on  the  blades.  Furthermore,  with  the  pitching  of  the  vessel, 
the  propeller  at  times  will  be  entirely  exposed  and,  unless  great 
care  is  taken  in  the  engine  room,  this  will  cause  the  engines  to 
race,  thus  subjecting  the  motive  power  to  unusual  stresses. 
The  exposed  surface  of  the  vessel  when  in  ballast  being  greater 
than  when  loaded,  the  pressure  of  the  wind  and  the  force  of 
breaking  seas  are  felt  with  greater  severity  than  in  the  case  of 
a  deeply  laden  vessel.  The  fact  that  the  vessel  is  so  far  out  of 
the  water  also  makes  her  less  easily  managed  and  she  will  not 
answer  her  helm  with  the  same  degree  of  precision  as  when  fully 
laden.  Added  to  this,  in  many  cases  care  is  not  taken  in  the 
stowage  of  ballast  to  secure  it  so  that  it  will  not  shift.  The  proper 
way  to  stow  ballast  is  first  to  adequately  secure  it,  and  second  to 
so  load  it  as  to  distribute  the  weight  in  such  manner  that  the 
center  of  gravity  will  be  as  high  as  possible.  The  meta-centcr 
height  is  usually  great  in  vessels  in  ballast  and  they  are  conse- 
quently stiff  and  snap  back  and  forth  in  heavy  seas,  causing  severe 
strains  to  the  structure  of  the  vessel.  While  it  is  true  that  the 
modern  steamer  is  equipped  with  ballast  tanks,  it  must  not  be 
assumed  that  these  tanks  are  built  into  the  vessel  to  enable 
it  to  go  to  sea  without  cargo.  These  tanks  when  full  of  water 
(and  they  should  be  either  absolutely  full  or  absolutely  empty, 
to  prevent  water  slushing  round  in  the  tanks  in  stormy  weather 
and  affecting  the  stability  of  the  vessel)  are  a  great  aid  to  a 
vessel  sailing  in  ballast.  The  primary  purpose  of  the  tanks, 
however,  is  to  give  the  vessel  proper  trim  when  loaded  with  light 
cargoes.  The  trim  of  a  vessel  is  her  position  in  relation  to  her 
load  line.     There  is  a  line  painted  on  most  ships,  which  shows  the 


THE  SHIP  AS  A  CARGO  CARRIER  81 

depth  to  which  she  should  be  submerged  when  fully  loaded.  It 
may  be  that  for  special  reasons  a  captain  will  wish  the  bow  of  the 
vessel  to  be  up  a  few  inches  and  the  stern  down  a  few  inches  and 
he  so  trims  the  boat  when  it  is  being  loaded. 

The  Classification  Societies. — As  most  vessels  are  built  accord- 
ing to  the  rules  and  under  the  supervision  of  the  classification 
societies,  some  description  of  their  organization  and  methods 
will  be  of  interest.  The  primary  object  of  these  societies  is  to 
see  that  the  vessels  built  under  their  supervision  are  fully  sea- 
worthy, so  far  as  construction  is  involved,  for  the  particular 
trade  for  which  they  are  designed.  It  is  in  no  sense  compulsory 
that  vessels  be  built  under  the  supervision  of  the  classification 
societies.  Perhaps  it  would  be  well  if  this  were  so.  However, 
a  shipowner  will  experience  considerable  difficulty  in  procuring 
insurance  on  his  vessel  if  it  does  not  appear  in  the  book  of  some 
recognized  classification  society  with  a  mark  indicating  that  it 
has  been  classed  by  that  organization.  The  classification  socie- 
ties promulgate  rules  for  the  building  of  wooden  and  metal 
ships.  They  have  at  the  principal  ports  of  the  world  where  ship- 
building is  carried  on,  agents  who  are  experienced  ship  construc- 
tors or  naval  architects  and  who  are  famiUar  with  the  societies' 
rules  and  regulations  and  who  are  competent  to  oversee  the 
construction  of  vessels. 

What  a  "Class"  Signifies. — If  a  man  intends  to  build  a  vessel, 
he  will  go  to  a  marine  architect  and  say  that  he  wants  a  steamer  of 
a  given  dead-weight  capacity,  suitable  for  a  named  trade,  to 
be  built  in  such  manner  that  it  will  receive  the  highest  class  at 
say,  Lloyd's  or  the  American  Record.  The  new  owner  may  not 
be  particular  about  the  type  of  steamer  which  he  gets,  if  it  will 
fulfill  the  service  for  which  he  needs  it,  obtain  the  desired  speed 
and  will  not  exceed  in  cost  the  amount  which  he  desires  to  spend. 
The  architect  accordingly  designs  a  steamer  to  be  built  to  the 
requirements  of  Lloyd's  or  the  American  Record.  In  the  front 
of  the  books  of  these  classification  societies,  there  is  set  forth  in 
great  detail  the  standards  of  construction,  material  and  work- 
manship which  they  require  in  a  vessel,  before  they  will  grant 
their  class.  If  the  steamer  is  to  be  built  under  their  supervision 
the  plans  and  specifications  will  be  submitted  to  them  for  exami- 
nation.    If  approved,  construction  will  be  commenced  and  from 


82  MARfXK  INSVRAXCE 

time  to  time  their  surveyors  will  examine  the  work  done,  and  will 
also  make  tests  of  the  materials  used  in  the  construction  of  both 
the  hull  and  the  macliinery.  When  the  vessel  is  completed,  a 
class  will  be  assigned  to  the  vessel,  requirement  being  made, 
however,  that  as  a  condition  precedent  to  the  continuance  of 
such  class,  periodical  surveys  shall  be  made  and  such  repairs 
and  replacements  made  as  the  surveyors  of  the  society  may 
demand.  These  periodical  surveys  may  be  made  at  any  port 
where  there  is  an  authorized  surveyor  of  the  society  and  where 
proper  dry-docking  facilities  are  obtainable. 

Lloyd's  Register.— These  classification  societies  play  an 
important  part  in  marine  underwriting.  In  fact  the  earliest 
"books"  were  those  compiled  by  British  Underwriters  setting 
forth  in  brief  and  coded  form,  their  opinion  of  the  various  vessels 
then  in  existence.  The  first  "books"  were  brought  out  in  1764, 
17G5  and  17G6  and  were  very  carefully  guarded  by  their  possess- 
ors. The  paucity  of  information  in  these  books,  compared  with 
the  wealth  of  facts  set  forth  in  the  modern  book  shows  the 
gigantic  progress  made  in  such  matters  in  the  last  one  hundred 
and  fifty  years.  These  volumes  issued  by  the  underwriters  at 
Lloyd's  continued  to  be  published  from  year  to  year,  but  in  1799 
a  rival  register  was  set  up  by  shipowners  who  were  dissatisfied 
with  the  treatment  accorded  by  Lloyd's.  The  two  registers 
continued  to  be  published  until  1833,  when  they  were  combined 
into  one  volume  known  as  the  "Register  of  British  and  Foreign 
Shipping."  The  following  year  the  book  appeared  as  "Lloyd's 
Register  of  British  and  Foreign  Shipping"  which  has  been  pub- 
lished continuously  until  the  present  day.  The  organization 
publishing  this  book  is  entirely  distinct  from  the  Underwriting 
Association  of  Lloyd's  London  and  has  on  its  managing  board 
underwriters,  shipowners,  merchants  and  ship])uilders.  It  is 
perhaps  fair  to  assume,  however,  that  the  underwriting  fraternity 
is  the  dominant  factor  in  the  organization.  They  pay  for  the 
mistakes  of  merchants,  architects  and  shipbuilders  and  it  is  but 
natural  that  they  should  be  the  chief  advocates  of  better  built 
ships. 

Rival  Organizations. — Rival  organizations  were  started  in 
other  countries  ))ecause  it  was  felt,  and  with  reason,  that  Lloj'd's 
discriminated  against  vessels  of  other  than  British  build.     Now 


THE  SHIP  AS  A  CARGO  CARRIER  83 

there  are  a  number  of  societies  all  performing  the  same  Kind  of 
service  and  naturally  in  the  bidding  for  business  modifying  the 
stringency  of  their  requirements,  with  consequent  detriment  to 
the  soundness  of  the  vessels  constructed  under  their  supervision. 
However,  underwriters  soon  discover  whether  or  not  the  require- 
ments of  the  societies  are  as  stringent  as  they  should  be  and 
classification  is  not  of  equal  value  in  all  societies.  The  fact  that 
a  ship  has  a  class  in  one  of  the  less  reputable  societies  warrants 
the  natural  inference  that  her  construction  is  such  that  the  better 
societies  would  not  class  the  vessel.  However,  the  mere  fact  that 
a  vessel  is  unclassed  does  not  necessarily  condemn  it.  Lack  of 
class  usually  indicates  one  of  two  conditions,  first,  that  the  vessel 
is  of  such  inferior  construction  that  no  classification  society 
would  be  sponsor  for  the  boat,  or  second,  that  the  vessel  may  be 
constructed  so  much  in  excess  of  the  requirements  of  any  society 
that  the  owners  are  not  warranted  in  incurring  the  additional 
expense  necessary  to  have  the  boat  classed.  This  latter  condition 
exists  with  many  steamers  of  the  first-class  passenger  and  freight 
lines. 

Necessity  for  Understanding  Classification  Society  Codes. — 
It  is  absolutely  necessary  for  marine  underwriters  and  important 
for  merchants  also,  that  they  be  able  to  read  intelligently  and 
understandingly  the  books  of  the  classification  societies.  The 
information  is  printed  in  coded  form,  each  book  having  its  own 
code  which  appears  translated  at  the  opening  of  the  volume.  It 
must  be  remembered  that  each  organization  has  classes  of  dif- 
ferent degrees  and  it  should  not  be  inferred  simply  because  a 
named  steamer  is  classed  in  the  American  Record  for  instance 
that  it  is  fit  for  the  intended  employment.  Classes  are  given 
for  harbor,  river,  lake,  coastwise,  ocean  and  other  services,  and 
unless  the  class  marks  are  understood,  underwriters  in  insuring 
and  merchants  in  engaging  freight  space  may  be  led  into  serious 
error.  A  portion  of  a  page  out  of  the  American  Record  is  re- 
printed here,  which  will  give  an  indication  of  the  wealth  of 
information  which  is  furnished  in  small  compass  by  these  volumes. 

The  American  Record. — This  record  is  published  by  the 
Bureau  of  American  and  Foreign  Shipping,  an  organization 
started  many  years  ago  to  foster  American  shipping  and  re- 
organized within  recent  years  on  a  plan  commensurate  with  the 


84 


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THE  SHIP  AS  A  CARGO  CARRIER  85 

position  which  the  American  Merchant  Marine  is  to  take  in  the 
world's  commerce.  Its  success  will  depend  largely  on  the  support 
and  encouragement  which  it  receives  from  the  underwriters, 
merchants,  shipowners  and  shipbuilders  of  this  country.  It  is  a 
gratifying  indication  of  the  trend  of  the  times,  that  the  larger 
part  of  the  ships  being  constructed  for  the  United  States  Shipping 
Board  are  being  built  under  the  supervision  of  this  bureau. 

Underwriters'  Surveyors. — The  well-organized  underwriting 
office  does  not  depend  altogether  on  the  records  of  vessels  as 
shown  in  the  Classification  Society  Books  but  has  a  staff  of 
competent  surveyors  of  its  own.  It  will  be  appreciated  that  a 
steamer  apparently  in  first  class  condition  in  the  Society's 
Book  may  have  experienced  disaster,  or  may  have  been  per- 
mitted to  run  down  since  her  last  Classification  survey.  It 
therefore  is  prudent  for  the  underwriters  so  far  as  possible  to 
have  their  own  vessel  records  and  their  own  surveyors,  in  whose 
judgment  they  have  confidence,  to  specially  report  on  vessels 
which  are  ofTered  for  insurance. 

Underwriters'  Organizations. — The  marine  insurance  busi- 
ness is  well  organized  and  to  aid  and  protect  underwriters  there 
have  been  established  here  and  abroad  societies  whose  purpose 
it  is  to  foster  the  business  and  to  obtain  uniformity  of  action 
among  underwriters.  In  this  country  there  was  organized  some 
years  ago  the  American  Institute  of  Marine  Underwriters  whose 
purpose  it  is  to  formulate  general  clauses  to  meet  special  con- 
ditions, to  follow  and  recommend  or  oppose  proposed  legisla- 
tion in  regard  to  marine  insurance  and  to  keep  in  close  touch  with 
similar  organizations  in  Great  Britain  and  other  foreign  countries. 
There  are  also  other  organizations  such  as  the  American  Hull 
Underwriters'  Association  and  the  Atlantic  Inland  Association 
whose  purpose  it  is  to  promulgate  rates  and  conditions  for  the 
insurance  of  the  special  class  of  risks  coming  within  their  purview. 
These  organizations  are  helpful  in  stabilizing  rates  and  afford 
a  common  meeting  place  where  the  assured  or  his  broker  can  dis- 
cuss proposed  insurance  and  reach  a  better  understanding  of 
the  requirements  of  underwriters. 

Underwriters'  Boards  and  Loss  Agents. — On  the  loss  side  of 
the  business  there  are  the  Underwriters'  Boards  such  as  the  New 
York  Board  of  Underwriters  and  the  National  Board  of  Marine 


86  MARINE  INSURANCE 

Underwriters,  who  have  representatives  at  the  principal  ports 
of  tlie  World.  These  representatives  send  prompt  reports  of 
disasters  occurrinp;  within  their  territory  and  are  competent  to 
take  chartje  of  operations  looking  to  the  safeguarding  of  the 
imperiled  property.  They  also  sui-vey  damaged  goods  and  issue 
certificates  showing  the  nature  and  extent  of  the  injury  suffered. 
These  Boards  supervise  the  loading  of  vessels  and  promulgate 
rules  for  the  proper  stowage  of  bulk  and  other  extra  hazardous 
cargoes.  Their  representatives  grant  certificates  showing  that 
vessels  are  fit  to  load  the  proposed  cargoes  and  when  loaded 
certify  that  the  loading  is  proper.  Obviously,  these  organiza- 
tions are  merely  voluntary,  and  are  powerful  protecting  factors 
in  overseas  commerce  only  in  so  far  as  they  receive  the  support 
and  encouragement  of  underwriters  and  shipowners.  The  work 
performed  by  Lloyd's  Agents,  that  is  the  agents  of  the  Under- 
writing Organization  of  Lloyd's,  London  as  distinguished  from 
the  Classification  Society,  is  somewhat  similar,  but  is  much  more 
extensive  in  its  application.  These  agents  are  also  news  gather- 
ers and  daily  and  hourly  in  fact  send  by  cable  or  letter  interesting 
facts  in  connection  with  marine  matters,  which  are  published  in 
the  daily  and  weekly  papers  of  the  organization.  A  similar 
work  is  performed  in  this  country  by  the  Maritime  Association 
of  the  Port  of  New  York. 

Salvage  Associations.— The  Salvage  Associations  are  usually 
privately  organized,  but  sometimes  have  on  their  boards  of 
managers  representatives  of  the  underwriters.  These  organiza- 
tions, as  the  name  implies,  attend  to  the  salvaging  of  both  ships 
and  cargo  when  damaged  or  in  a  position  of  peril.  Some  of  these 
organizations  such  as  the  London  Salvage  Association  have  their 
own  wrecking  department  fully  equipped  with  vessels  and  machin- 
ery suitable  for  salvage  operations.  Other  organizations  call 
in,  when  needed,  private  wrecking  companies  who  are  experi- 
enced in  salvage  work.  These  associations  do  much  to  reduce 
marine  losses  and  are  of  value  not  only  to  the  underwriters  but 
to  merchants  and  shipowners  as  well. 

Maps,  Charts  and  Port  Books. — The  Underwriting  office 
itself  must  be  equipped  with  or  have  access  to  maps,  charts  and 
port  books  showing  the  ocean  tracks,  paths  of  the  winds,  currents, 
lighthouses,  wireless  stations,  particulars  of  ports  with  respect  to 


THE  SHIP  AS  A  CARGO  CARRIER  87 

depth  of  water,  bertliing  accommodations,  facilities  for  supplies 
of  fuel  and  stores  and  the  numberless  other  items  of  information 
which  it  is  necessary  for  an  underwriter  to  know  in  order  to 
intelligently  consider  a  risk  from  the  geographic  viewpoint. 
Improvement  in  port  conditions  and  changes  in  commercial 
methods  are  so  rapid  that  an  underwriter  must  keep  abreast  of 
the  times  and  be  informed  as  to  present  conditions  with  respect 
to  shipping  and  commerce,  not  only  in  his  own  country  but  also 
in  foreign  nations. 

The  Tools  of  the  Underwriter. — The  classification  societies, 
underwriters'  organizations  and  the  various  publications  in 
regard  to  marine  matters  may  be  called  the  tools  of  the  under- 
writer. As  every  skillful  workman  must  be  fully  equipped  with 
the  tools  necessary  for  his  particular  work  and  understand  their 
use,  so  the  marine  underwriter  must  have  his  tools  and  fully 
understand  their  use  and  purpose. 

Factors  in  Underwriting-Nationality. — Having  in  mind  this 
general  resume  of  what  may  be  called  the  physical  background 
of  marine  insurance,  it  will  be  of  interest,  before  proceeding  to 
the  consideration  of  marine  insurance  principles,  to  mention  some 
of  the  factors  which  an  underwriter  must  take  into  account  in 
deciding  whether  or  not  a  risk  offered  is  acceptable.  First  of 
all  the  question  of  the  nationality  of  the  vessel  is  of  great  moment. 
In  war  times  its  importance  is  apparent,  but  in  times  of  peace 
while  this  factor  is  of  only  slightly  less  importance,  its  bearing 
on  the  risk  lies  beneath  the  surface.  It  is  a  well-known  fact  that 
certain  nations  have  produced  more  skillful  mariners  than  others. 
The  adaptability  of  a  people  to  a  seafaring  life  is  largely  a  matter 
of  temperament.  This  fact  is  of  no  little  importance  to  under- 
writers, because  at  a  time  of  crisis,  when  the  captain  and  crew 
have  to  think  and  act  quickly  and  clearly,  the  citizens  of  those 
nations  whose  heritage  has  been  connected  with  the  sea,  seem  to 
have  the  innate  ability  to  do  the  right  thing  at  the  right  time  and 
to  take  advantage  of  every  opportunity  to  preserve  the  ship  and 
the  cargo. 

Owners,  Managers  and  Masters. — The  ownership  of  a  vessel 
is  also  a  matter  of  much  concern.  It  is  a  singular  fact  that  some 
owners  run  their  vessels  without  incurring  many  accidents, 
while  others  born  perhaps  under  less  lucky  stars  are  always  in 


88  MARINE  INSURANCE 

trouble.  An  underwriter  is  not  so  much  interested  as  to  why  one 
ownership  is  good  and  another  bad,  as  he  is  in  the  fact  itself.  An 
owner  or  a  line  may  innocently  acquire  a  bad  reputation,  but 
more  often  such  reputations  are  the  result  of  incompetent  man- 
agement. Poor  management  results  in  deteriorated,  insuffi- 
ciently eciuipped  vessels,  often  incompetently  officered  and 
manned.  Truly  in  shipowning  and  ship  managing  "  a  good  name 
is  rather  to  be  cho.sen  than  great  riches."  There  is  another  side 
to  tiie  question  of  ownership.  An  owner  may  keep  his  property 
in  good  condition,  he  may  employ  competent  officers  and  crews, 
but  his  reputation  for  fair  dealing  in  cases  of  disaster,  when  so 
much  depends  on  the  attitude  of  the  shipowner,  may  make 
underwriters  wary  of  accepting  risks  on  his  vessels.  Up  to  within 
a  year  or  two  Lloyd's  London  published  a  volume  which  listed 
all  British  steamers  under  their  owners.  These  lists  contained 
not  only  all  boats  presently  owned,  but  all  vessels  formerly 
owned  and  which  had  met  an  untimely  end  through  disaster  or 
had  ended  their  career  in  the  scrap  heap.  This  book  gave 
the  history  of  each  vessel  showing  the  various  disasters  to  hull 
and  machinery  and  where  they  had  occurred.  This  volume, 
which  will  doubtless  be  published  again  when  the  world  resumes 
its  peaceful  course,  was  obviously  published  for  the  confidential 
use  of  underwriters,  and  afforded  a  vivid  picture  of  the  results  of 
good  and  bad  management.  Lloyd's  have  also  a  record,  giving 
in  brief  form,  statistics  in  regard  to  the  life  career  of  all  British 
ship  masters,  showing  the  ships  which  they  have  commanded 
and  what  misfortunes  they  have  experienced  with  their  vessels. 
The  value  of  a  risk  is  influenced  not  a  little  by  the  character  of 
the  master  to  whom  the  venture  is  entrusted. 

Structural  Characteristics  of  Ship  and  Its  Physical  Condition. — 
The  material  of  which  the  vessel  is  built,  her  structural  plan, 
her  engine,  horsepower  and  interior  condition  with  respect  to 
the  protection  of  cargo  which  may  be  carried  in  her  hold  are  all 
matters  of  moment  to  underwriters.  If  a  great  single  deck  bulk 
freighter  is  put  on  the  berth  to  load  a  general  miscellaneous  cargo, 
the  underwriter  must  think  what  will  be  the  effect  on  barrels  of 
oil  or  other  cargo  placed  in  the  bottom  of  the  hold  which  will 
have  to  sustain  the  pressure  of  the  weight  of  cargo  loaded  above. 
Or  if  it  be  a  tank  steamer  which  has  carried  bulk  petroleum  to 


THE  SHIP  AS  A  CARGO  CARRIER  89 

Cuba  and  is  to  return  to  the  United  States  with  a  cargo  of  molas- 
ses, the  underwriter  will  be  interested  in  knowing  if  the  hold  has 
been  steamed  or  otherwise  cleansed  before  the  molasses  is 
loaded.  If  the  vessel  is  to  carry  a  perishable  cargo  such  as  green 
coffee  or  cocoa  beans  it  is  pertinent  to  inquire  whether  the  holds 
are  fitted  with  cargo  battens  and  properly  dunnaged  to  protect 
the  cargo  from  the  moisture  which  may  condense  on  the  inside 
of  the  vessel.  If  a  full  cargo  of  grain  is  to  be  loaded,  question  will 
arise  as  to  whether  the  vessel  has  been  properly  equipped  with 
shifting  boards  and  wing  feeders.  These  illustrations  will  serve 
to  indicate  the  trend  of  an  underwriter's  thought  in  considering 
the  physical  condition  of  the  vessel. 

Other  Considerations. — Again,  the  season  of  the  year  during 
which  the  voyage  is  to  be  made  becomes  of  interest  when  we 
recall  the  periodic  storms  which  run  their  courses  on  the  ocean 
and  the  ice  conditions  which  exist  at  certain  seasons  on  the 
Great  Lakes  and  in  other  places  in  the  cooler  latitudes.  In  the 
case  of  cargo  insurance  the  kind  of  goods  to  be  insured  is  im- 
portant, considered  not  only  for  its  intrinsic  qualities,  but  also 
for  its  usefulness  at  the  port  of  destination.  It  may  be  that  in 
the  event  of  disaster  there  will  be  small  salvage  to  the  goods  or 
there  may  be  no  market  at  the  port  of  destination  or  at  an  in- 
termediate port  of  refuge  for  damaged  goods  of  the  particular 
character  in  question. 

The  Measurement  of  Ships. — An  underwriter  is  often  asked 
to  quote  on  a  full  cargo  of  grain,  or  other  bulk  cargo,  it  may  be 
without  any  definite  information  being  given  as  to  the  quantity 
to  be  laden.  It  is  important  that  he  have  some  rule  by  which 
he  can  quickly  estimate  the  quantity  which  the  vessel  can  carry 
and  from  this  quantity  arrive  at  the  approximate  value  of  the 
cargo.  In  the  books  of  the  classification  societies  there  is  usually 
given  in  the  tonnage  column  two  figures,  one  larger  than  the 
other.  In  a  previous  chapter  the  displacement  of  a  vessel  was 
described  at  the  weight  of  the  vessel  in  tons.  The  tonnage  of  a 
vessel  as  shown  in  the  classification  society  books  is  not  displace- 
ment tonnage  but  measurement  tonnage.  Many  years  ago  in 
order  to  gain  uniformity  in  the  measurements  of  vessels,  there 
was  arbitrarily  adopted  in  Great  Britain  a  measurement  ton  of 
100  cubic  feet,  and  this  unit  of  measure  has  generally  been  ac- 


90  MARINE  INSURANCE 

cepted  by  other  nations.  The  tonnage  shown  in  the  Classifica- 
tion Books  therefore  indicates  the  number  of  tons  of  100  cubic 
feet  eacli  contained  in  the  boat,  the  larger  figure  indicating  the 
number  of  measurement  tons  in  the  enclosed  watertight  portion 
of  the  ship,  without  any  allowance  being  made  for  necessary 
engine,  crew,  fuel  and  store  space;  the  smaller  figure  showing  the 
measurement  tonnage  with  these  spaces  deducted.  The  larger 
figure  is  known  as  the  gross  tonnage,  the  smaller,  the  net  ton- 
nage. Sometimes  in  the  case  of  passenger  boats  an  intermediate 
measurement  of  the  vessels,  before  the  passenger  accommoda- 
tions are  deducted,  is  shown.  There  are  elaborate  rules  for  the 
measurements  of  gross,  intermediate  and  net  tonnage,  which 
vary  in  different  countries  and  in  connection  with  the  tonnage 
dues  at  the  Panama  and  Suez  Canals. 

The  Measurement  of  Cargo  Capacity. — While  the  measure- 
ment ton  is  100  cubic  feet,  a  ton  of  average  deadweight  cargo 
occupies  only  about  40  cubic  feet.  This  is  true  of  grain  and 
many  other  bulk  cargoes.  It  is  therefore  possible  in  such  cases 
to  load  about  two  and  one-half  tons  of  cargo  in  one  measurement 
ton  of  space,  and  as  each  thirty-five  cubic  feet  of  water  will 
support  one  ton  (see  ante,  p.  69),  it  will  therefore  be  quite 
possible  to  load  more  than  twice  the  net  registered  tonnage  with 
grain  and  still  not  have  exhausted  the  supporting  power  of  the 
water.  Whether  or  not  this  quantity  of  grain  could  be  loaded 
would  depend  somewhat  on  the  structural  arrangement  of  the 
particular  vessel  in  question,  and  the  necessity  of  having  adequate 
freeboard.  In  this  connection  Professor  Emory  R.  Johnson, 
in  Ocean  and  Inland  Water  Transportation,  cites  the  following 
rule  in  regard  to  loading- 

"Tlie  ratio  of  net  register  to  cargo  tonnage  of  the  modern  freight 
steamer  loaded  with  general  cargo  is  as  1  to  23-4-  In  the  large  modern 
sailing  vessel  the  cargo  tonnage  of  the  loaded  vessel  will  average  about 
1%  times  the  net  register." 

To  apply  this  rule  to  the  proposed  full  cargo  of  grain,  the  under- 
writer would  multiply  the  net  registered  tonnage,  by  say  2}^  and 
multiplying  this  result  by  the  value  of  the  grain  per  ton  obtain 
a  fair  approximation  of  the  values  of  the  contemplated  cargo. 
Some  graphic  idea  of  the  cargo  capacity  of  a  freight  steamer  of 


THE  SHIP  AS  A  CARGO  CARRIER  91 

say  4000  net  tons  may  be  gained  by  considering  how  much  bulk 
there  is  to  9000  tons  of  wheat,  the  quantity  which  such  a  vessel 
could  carry  under  the  above  cited  rule.  Each  ton  of  wheat 
consists  of  approximately  40  bushels,  so  that  this  vessel  could 
carry  360,000  bushels.  The  average  yield  per  acre  is  say  30 
bushels,  so  that  this  cargo  will  represent  the  yield  of  12,000 
acres  or  about  20  square  miles  of  land.  To  carry  this  grain  to 
the  vessel  will  require  a  train  of  180  cars,  each  carrying  50  tons 
and  stretching  over  a  mile  in  length.  Such  are  the  giant  freight 
boats  that  enable  this  country  to  be  the  granary  of  the  world. 

Cargoes  and  Shipping  Packages. — While  it  is  true  that  the 
physical  condition  of  the  ship  itself  must  be  considered,  it  is  no 
less  true  that  the  underwriter  must  give  thought  to  the  intrinsic 
qualities  of  cargo  which  is  offered  for  insurance  and  of  the  nature 
of  the  package  in  which  such  cargo  is  shipped.  In  some  countries 
it  is  a  difficult  and  expensive  matter  to  obtain  wood  to  make 
packing  cases  and  accordingly  articles  easily  damaged,  packed 
in  inferior  containers  place  an  additional  burden  on  underwriters. 
It  is  also  a  fact  that  packing  cases  or  barrels  used  in  importing 
goods  into  a  foreign  country,  may  be  again  used  in  the  export  of 
goods.  This  is  notably  true  in  the  shipment  of  oil  from  the 
Far  East  where  the  second  hand  barrels  and  cases  in  which 
American  oil  has  been  imported  are  used  in  the  export  of  the 
native  oils.  The  consequence  is  that  heavy  leakage  claims 
result.  An  underwriter's  education  is  never  completed.  Day  by 
day  he  must  keep  abreast  of  the  new  conditions  which  are  occur- 
ring in  all  parts  of  the  world  and  be  able  to  deduce  the  effects  which 
these  new  conditions  will  have  on  marine  underwriting. 

The  Moral  Hazard. — Before  passing  from  the  consideration 
of  the  factors  which  are  important  in  the  judging  of  risks,  mention 
must  be  made  of  what  is  undoubtedly  the  primary  and  most 
important  factor  in  marine  underwriting.  As  will  be  pointed 
out  in  subsequent  chapters,  the  whole  fabric  of  marine  under- 
writing is  based  on  good  faith  and  fair  dealing  existing  between 
underwriter  and  assured.  This  element  in  the  marine  contract 
is  little  talked  of  but  is  ever  present  and  is  known  as  the  "moral 
hazard."  An  underwriter  must  rely  to  a  very  large  extent  on 
the  statements  made  by  a  merchant  or  shipowner  with  respect 
to  the  risk  offered  for  insurance.     To  be  sure,  the  underwriter 


02  M.\  h'l.\  E  I XS  [J  If  A  NCE 

luis  some  documentary  evidence  in  the  classification  books 
respecting  the  vessel,  but  in  many  cases  he  knows  nothing  defi- 
nite regarding  its  present  condition.  When  the  subject  matter 
is  cargo,  the  underwriter  must  rely  almost  entirely  on  the  in- 
tegrity of  the  insured,  and  his  willingness  to  tell  of  any  unusual 
circumstances  connected  with  the  shipment.  The  underwriter 
is  presumed  to  know  all  the  usual  conditions  in  regard  to  various 
kinds  of  goods  and  their  mode  of  shipment,  but  as  a  rule  he  is 
working  on  theory  alone  and  has  no  opportunity  to  actually 
view  the  goods.  The  result  is  that  an  underwriter  must  be  a 
reader  of  character  and  a  judge  of  the  hearts  and  intents  of  men. 
After  a  loss  has  occurred,  it  is  too  late  to  discover  that  an  assured 
is  a  deceiver  or  a  skillful  talker,  perhaps  telling  the  truth  in 
regard  to  the  risk,  but  not  the  whole  truth.  The  experienced 
and  careful  underwriter  must  be  able  to  judge  the  character  of  a 
man  at  sight,  instead  of  discovering  his  deficiencies  in  the  ex- 
pensive and  bitter  school  of  experience.  And  so  in  passing  to  the 
consideration  of  marine  insurance  principles  and  practice  it  is 
well  to  understand  that  the  profession  of  marine  underwriting 
is  a  serious  one,  calling  for  the  greatest  degree  of  skill  and  knowl- 
edge and  for  a  more  than  ordinary  equipment  of  common  sense 
and  abihty  to  judge  men. 


CHAPTER  5 

THE  CONTRACT  OF  MARINE  INSURANCE.     RULES 
FOR  CONSTRUCTION 

Definition  of  Marine  Insurance. — Marine  Insurance  is  a 
contract  of  indemnity  whereby  one  party  called  the  assurer  or 
underwriter  agrees  for  a  stated  consideration  known  as  the 
premium,  to  indemnify  another  party  called  the  insured  or  assured 
against  loss,  damage  or  expense  in  connection  with  the  subject 
matter  at  risk  if  caused  by  perils  enumerated  in  the  contract 
known  as  the  policy  of  insurance.  It  should  always  be  borne  in 
mind  that  a  policy  of  insurance  is  a  personal  contract  and  insures 
the  person  or  persons  interested  in  the  subject  matter  and  not 
the  subject  matter  itself.  The  policy  promises  to  indemnify  the 
assured  for  damage  arising  out  of  the  loss  or  damage  of  the  prop- 
erty insured,  but  does  not  guarantee  the  continued  existence  or 
replacement  of  the  thing  itself. 

Not  a  Perfect  Contract  of  Indemnity. — A  marine  insurance 
policy  is  not  a  perfect  contract  of  indemnity.  To  indemnify 
means  to  make  good,  to  put  a  person  back  in  his  original  condition 
with  respect  to  a  specified  thing  or  a  certain  condition.  In- 
surance strives  so  far  as  possible  to  make  good  whatever  financial 
loss  a  person  may  have  suffered,  through  the  destruction  or  de- 
preciation of  the  intrinsic  value  of  the  commodity  to  which  the 
insurance  relates,  but  does  not  endeavor  to  reimburse  the  assured 
for  any  sentimental  or  esthetic  value  unless  it  is  definitely 
possible  to  financially  measure  such  value  and  the  underwriter 
and  assured  have  mutually  agreed  that  such  value  shall  be  insured. 

Only  Fortuitous  Losses  Covered. — Marine  insurance  was  never 
devised  to  protect  the  assured  against  all  loss  or  damage  which 
may  overtake  his  property,  but  only  against  those  losses  which  are 
fortuitous  and  beyond  the  control  of  the  assured.  The  policy 
will  not  cover  damages  which  are  inevitable  or  usual  because  of 
the  nature  of  the  goods,  the  shipping  package  or  the  voyage  in 
question.  Competition,  it  is  true,  has  greatly  modified  this  rule, 
8  93 


94  M  A  h'l  A'  K  I XS I '  h'A  A'  CE 

but  tlie  principle  remains  and  fshould  always  be  enforced  in  the 
case  of  vice  proprc  losses;  that  is  losses  which  are  the  result  of 
tlie  iiilierent  qualities  of  the  subject  matter  insured  and  not  the 
result  of  casualty.  Perhaps,  the  best  illustration  of  what  is 
meant  by  vice  propre  or  inherent  defect  is  the  loss  caused  to 
flour  through  the  appearance  under  certain  conditions  of  weevils 
and  grubs  the  result  of  the  very  nature  of  the  commodity  itself 
and  not  caused  by  any  outside  force. 

Negligence  Should  Not  be  Covered  by  Policy. — Neither  should 
marine  insurance  agree  to  indemnify  the  assured  against  losses 
whicli  arc  the  result  of  the  negligence  or  carelessness  of  those  into 
whose  custody  the  property  is  given.  That  is,  the  insurer  should 
not  assume  liability  for  loss  or  damage  caused  through  the  neglect 
of  carriers  whether  private  or  conmion.  The  law  charges  the 
carrier  under  the  bill  of  lading  with  certain  duties  which  he  should 
be  compelled  to  perform,  and  the  assured  should  not  be  per- 
mitted because  of  insurance  to  become  remiss  in  his  duty  of 
enforcing  carriers  to  comply  with  their  obligations.  True,  it  is 
often  easier  to  insure  against  some  risk  which  is  an  obligation  of 
the  carrier  than  it  is  to  enforce  the  obligation  without  the  use  of 
legal  pressure,  but  the  inevitable  result  of  such  a  course  over  a 
period  of  years  is  detrimental  to  all  concerned.  This  is  abundantly 
shown  in  the  matter  of  pilferage  claims.  Such  losses  are  the 
result  of  negligence  on  the  part  of  those  into  whose  custody 
property  is  entrusted.  Through  lack  of  protection  packages  are 
opened  and  part  or  all  of  the  contents  removed.  For  this  loss 
the  carrier  responds  if  it  can  be  shown  that  the  pilferage  took 
place  while  the  goods  were  in  his  possession.  Owing  to  the  delay 
in  collecting  such  losses,  underwriters  were  urged  to  give  protec- 
tion against  such  losses  so  that  the  assured  might  be  promptly 
reimbursed  and  not  have  to  wait  on  the  convenience  of  the 
carriers.  Some  underwriters  consented,  with  the  result  that  the 
writing  of  pilferage  insurance  became  general.  The  carriers 
knowing  that  the  shipper  could  obtain  protection  against  such 
losses,  were  less  ready  to  settle  these  claims  practically  denying 
liability  in  many  cases  and  interposing  all  sorts  of  objections 
to  the  claims  presented.  Limitations  of  liability  have  also  been 
inserted  in  bills  of  lading  where  possible,  limiting  the  amount  for 
wliicli  the  carrier  assumes  liabihty  to  a  merely  nominal  sum. 


THE  CONTRACT  OF  MARINE  INSURANCE  95 

The  result  is  that  some  carriers  have  successfully,  if  not  legally, 
avoided  their  liability  for  these  losses  and  as  a  consequence  have 
relaxed  their  watchfulness,  with  the  natural  result  that  pilferage 
losses  have  assumed  enormous  proportions.  Underwriters  are  in 
a  quandaiy  to  know  how  to  extricate  themselves  from  a  difficult 
situation  into  which  they  have  unwittingly  allowed  themselves  to 
be  drawn.  Eventually  the  assured  will  i^ay  for  these  losses  and 
upon  him  will  be  visited  the  result  of  his  demand  of  underwriters 
for  protection  against  losses  which  are  the  liability  of  carriers 

The  Effect  of  Insurance. — The  procurement  of  mai'ine  insurance 
by  the  assured  results  in  the  distribution  to  the  ultimate  consumer 
of  the  losses  which  overtake  property  in  oversea  and  overland 
commerce.  The  underwriter  charges  a  premium  for  the  insur- 
ance of  the  risks  which  he  underwrites.  This  premium  charge 
becomes  one  of  the  items  in  the  invoice  for  the  sale  of  the  goods, 
and  in  the  freight  rate,  which  is  also  an  item  in  the  invoice,  there 
is  included  indirectly  part  of  the  cost  of  insuring  the  hull  of  the 
vessel.  In  this  way  the  cost  of  insurance  becomes  part  of  the 
price  of  the  goods  and  is  an  indirect  charge  on  the  consumer. 
The  underwriter  assumes  the  burden  of  the  losses  and  thus  stabil- 
izes prices  and  makes  possible  large  commercial  transactions. 

The  Law  of  Averages.  Competition. — In  fixing  rates  adequate 
to  compensate  him  for  the  losses  paid  and  the  expenses  incurred, 
and  to  produce  a  profit  on  the  capital  invested,  the  underwriter 
works  on  the  law  of  averages.  This  average  is  not  the  result 
shown  by  the  outcome  of  a  few  risks  but  the  result  shown  by 
many  risks  of  the  same  kind  over  a  period  of  years.  Ten  years 
is  a  fair  period  from  which  to  draw  deductions,  for  in  this  length  of 
time  practically  every  condition  pecuhar  to  a  given  trade  will 
occur  and  the  number  of  risks  run  in  such  a  period  will  be  suffi- 
ciently great  to  enable  fairly  accurate  conclusions  to  be  drawn. 
But  in  the  last  analysis  such  deductions  are  not  more  than  an 
approximation  toward  scientific  accuracy.  Competition  serves 
to  hold  rates  down  to  the  point  where  there  is  only  a  fair  margin  of 
profit  on  the  capital  invested.  If  the  rates  on  a  certain  fine  of 
insurance  are  such  that  an  undue  margin  of  profit  results,  under- 
writers who  are  not  actively  engaged  in  this  particular  branch  of 
the  business  will  cut  rates  in  order  to  get  a  share  of  the  good 
business  and  those  who  are  underwriting  this  particular  kind  of 


9G  MARINE  INSURANCE 

risk  will  necessarily  be  forced  to  meet  this  competition.  On 
the  other  hand  if  a  certain  line  of  business  i)roves  unprofitable 
underwriters  will  forego  this  class  of  insurance  unless  higher  rates 
will  be  i^aid  by  merchants  or  shipowners.  So  it  is  that  rates 
fluctuate  within  narrow  limits.  In  addition  underwriters  always 
face  the  possibility  that  if  undue  profits  are  made  on  any  particu- 
lar class  of  business,  self  insurance  may  result,  merchants  and 
shipowners  figuring  that  if  the  underwriter  can  make  money  by 
assuming  the  risk  they  can  save  money  by  carrying  it  themselves. 
But  unless  they  have  a  very  large  and  diversified  business  such 
reasoning  is  fallacious,  as  they  will  not  have  sufficient  distribution 
of  risk  to  permit  the  law  of  averages  to  play  its  part  and  a  severe 
total  loss  may  furnish  a  pointed  object  lesson  of  the  folly  of  self 
insurance  under  ordinary  conditions. 

Modern  Policy  Broad  in  Its  Protection.  —  Transportation 
insurance  would  probably  be  a  better  modern  name  for  so-called 
marine  insurance.  The  present-day  marine  insurance  policy  on 
goods  covers  property  from  the  time  it  leaves  the  shipper's  ware- 
house until  in  due  course  of  transit  it  is  delivered  by  land  and/or 
water  conveyances  to  the  consignee's  warehouse.  It  is  in  its 
broadest  sense  transportation  insurance  by  land  and/or  water  and 
consequently  merchandise  should  never  be  covered  by  a  marine 
policy,  after  transit  has  ceased  or  after  the  property  has  been 
placed  in  the  custody  of  the  owner. 

Good  Faith. — In  no  branch  of  the  insurance  science  docs  good 
faith  plaj'  so  large  a  part  as  in  the  marine  field.  An  underwriter 
is  often  asked  to  insure  a  ship  or  a  cargo  thousands  of  miles  away 
without  making  any  inspection  of  the  risk.  In  such  cases  he  must 
rely  absolutely  on  the  statements  made  by  the  applicant  in  so  far 
as  they  relate  to  matters  which  cannot  be  confirmed  by  the 
information  which  the  underwriter  has  at  his  disposal  in  the  classi- 
fication society  books  and  in  the  shipping  papers.  He  is,  it  is 
true,  protected  in  a  measure  by  the  implied  warranties,  such  as 
seaworthiness,  which  are  read  into  the  contract,  but  to  a  great 
extent  he  must  rely  on  information  which  he  cannot  confirm. 
It  is  true  therefore  that  good  faith  and  fair  dealing  are  the  corner- 
stones   on   which   the   marine   insurance   business   is   founded. 

Elements  of  a  Contract. — To  have  a  valid  contract  of  insurance 
the  following  elements  must  appear,  viz.: 


THE.  CONTRACT  OF  MARINE  INSURANCE  97 

1.  The  parties  to  the  contract  must  be  legally  competent  to 
make  a  contract. 

2.  The  Assured  must  have  an  insurable  interest. 

3.  A  valid  consideration  must  pass  (the  premivun). 

4.  There  must  be  a  meeting  of  the  minds  of  the  contracting 
parties. 

5.  The  contract  must  have  a  legal  purpose. 

Corporate  and  Individual  Underwriters. — Basically  a  marine 
insurance  contract  is  no  different  from  any  other.  The  legal 
safeguards  surrounding  contracts  in  general  are  applicable  to 
insurance  contracts,  and  in  addition  there  have  been  read  into  the 
latter  many  conditions  for  the  protection  of  both  assured  and 
underwriter  which  are  not  included  in  other  forms  of  agreement. 
In  this  country  at  the  present  time  marine  insurance  is  conducted 
almost  exclusively  by  incorporated  companies.  These  co  pora- 
tions  chartered  by  the  various  states  are  legally  competent  to  en- 
gage in  the  business  of  insurance  so  far  as  they  are  given  authority 
under  their  charters.  There  seems  to  be  no  valid  reason,  how- 
ever, why  individuals  should  not  engage  in  business  as  under- 
writers. Formerly  this  was  done,  but  the  American  mind  has 
turned  more  readily  to  the  corporate  form  of  underwriting 
with  its  published  statements  of  assets,  liabilities  and  surplus. 
This  condition  contrasts  greatly  with  the  composition  of  the 
English  marine  insurance  market  wherein  individuals  under- 
writing at  Lloyd's  and  elsewhere  form  an  important  part  of 
the  market.  Any  one  may  be  an  assured  if  he  is  legally  com- 
petent to  enter  into  a  contract.  That  is,  he  must  be  of  legal 
age  and  of  sound  mind  and  must  be  otherwise  within  the  rules 
which  the  law  prescribes  regarding  contracting  parties. 

An  Insurable  Interest  Necessary. — But  no  person  can  become 
a  party  to  a  marine  insurance  contract  unless  he  has  an  insurable 
interest.  That  is,  the  assured  must  bear  such  a  relation  to  the 
insured  subject,  that  directly  or  indirectly  he  will  be  benefited 
by  its  safe  arrival  or  continued  existence  or  be  injured  by  its 
damage  or  loss.  In  other  words  a  person  cannot  legally,  merely 
because  he  knows  that  there  is  certain  property  subject  to  marine 
hazards,  take  out  insurance  on  that  property  for  his  own  benefit. 
The  party  seeking  insurance  must  bear  some  provable  relation 
to  the  property  itself  in  order  to  insure  it  for  his  own  benefit, 


08  MAh'LXE  INSURANCE 

or  tliore  must  exist  some  legal  rcilation  o[  agency  to  enable  one 
t  o  take  out  insurance  for  the  benefit  of  another  who  has  a  valid 
insurable  interest.  Insurance  which  does  not  stand  the  test  of 
tlicse  two  conditions  is  void  in  law,  and  in  some  of  our  states  and 
in  Great  Britain  is  prohibited  by  statute. 

The  Premium  a  Valid  Consideration. — The  third  requirement 
of  the  marine  insurance  contract  is  that  there  be  a  valid  con- 
sideration. In  every  legal  contract  it  must  be  possible  to  show 
that  the  person  who  performs  or  agrees  to  perform  some  service 
receives  or  will  receive  some  adeciuate  compensation.  The 
parties  themselves  are,  however,  the  judge  of  the  adequacy  of 
the  compensation,  and  its  intrinsic  value  is  not  as  important  as 
is  the  fact  that  the  parties  agreed  to  some  measure  of  compen- 
sation. So  we  find  in  all  insurance  contracts  provision  made  for 
the  payment  by  the  assured  to  the  underwriter  of  a  sum  of  money 
called  the  premium.  How  large  or  how  small  this  amount  may 
be  is  legally  of  no  consequence,  if  the  assured  and  the  underwriter 
have  mutually  agreed  on  the  amount  charged.  If  the  insured 
subject  is  lost  the  underwriter  cannot  refuse  to  pay  on  the  ground 
that  the  premium  was  too  low,  neither  can  the  assured  in  the 
event  of  safe  arrival  legally  demand  part  of  the  premium  back. 

The  Minds  of  the  Contracting  Parties  must  Meet. — It  is 
a  basic  principal  of  the  law  of  contracts  that  the  minds  of  the 
parties  must  meet.  If  the  assured  and  the  underwriter  enter  into 
negotiations  for  insurance  relating  to  a  certain  subject  or  condition, 
and  if  the  assured  has  one  subject  or  condition  in  mind  while  the 
underwriter  has  a  similar  but,  in  effect,  entirely  different  subject 
or  condition,  even  should  they  complete  their  negotiations  and 
a  policy  be  issued,  it  will  not  be  valid  or  enforceable  in  law.  The 
contract  as  issued  does  not  relate  to  anything  which  was  common 
to  the  thought  of  both  parties,  and  therefore  is  null  and  void  and 
of  no  effect.  It  is  therefore  of  the  highest  importance  in  the 
procuring  of  marine  insurance  that  a  full  disclosure  of  all  facts  be 
made,  so  that  no  misunderstanding  may  exist  as  to  the  amount  to 
be  insured,  the  quantity  and  kind  of  property,  the  carrying  con- 
veyance, the  voyage  to  be  run  and  the  date  of  sailing  or  shipment. 
How  important  each  of  these  elements  of  an  insurance  contract 
is  will  appear  in  a  subsequent  detailed  discussion  of  these  phases 
of  the  insurance  policy.     The  question  of  fair  dealing  plays 


THE  CONTRACT  OF  MARINE  INSURANCE  09 

such  an  important  part  in  marine  insurance  that  the  law  has 
required  a  fuller  disclosure  of  the  facts  relating  to  these  contracts 
than  it  docs  with  respect  to  other  contractual  relations. 

A  Legal  Purpose  Necessary. — That  a  contract  must  have  a 
legal  purpose  is  self-evident.  The  law  will  not  tolerate  prac- 
tices against  public  policy  under  the  guise  of  insurance.  Gam- 
bling done  in  the  form  of  insurance  is  as  injurious  to  the  public 
morals  as  is  gambling  done  in  a  less  respectable  way.  The 
issuance  of  insurance  in  connection  with  transactions  which  are 
contrary  to  law,  is  tainted  with  the  same  defect  as  is  the  trans- 
action to  which  the  insurance  relates.  Insurance  is  a  necessary 
part  of  the  commercial  life  of  the  nations,  but  aids  in  the  conduct 
of  commerce  only  so  far  as  it  complies  with  national  and 
international  law. 

Direct  and  Indirect  Placing  of  Insurance. — Two  methods  of 
placing  insurance  are  in  vogue.  A  merchant  may  treat  with  an 
underwriter  directly  or  he  may  turn  over  to  a  broker,  who  is 
trained  in  the  practice  and  principles  of  marine  insurance,  the 
placing  of  his  insurance  for  him.  Each  method  has  its  advan- 
tages. An  insured  in  dealing  directly  with  an  underwriter  may  be 
able  to  present  the  risk  in  a  more  favorable  light  than  the  broker, 
because  he  has  a  fuller  knowledge  of  the  peculiar  character  of  the 
property  which  he  is  insuring  and  can  in  many  cases  demonstrate 
to  the  underwriter  the  result  of  the  action  of  sea  water  and  the 
effect  of  handling  on  the  commodity  on  which  insurance  is 
desired.  On  the  other  hand,  if  the  merchant  has  not  a  fair  under- 
standing of  insurance  principles,  he  may  greatly  harm  himself 
by  asking  for  and  accepting  insurance  which  does  not  fully 
protect  his  property.  Thus  it  has  happened  in  not  a  few  cases 
within  recent  years  that  an  assured  has  unwittingly  assumed 
that  the  ordinary  form  of  marine  policy  covered  the  risks  of  war. 

Brokers. — If  the  business  of  a  merchant  or  shipowner  is  so  large 
and  diversified  that  he  has  to  deal  with  many  underwriters,  or  if 
his  business  is  smaller  but  he  has  little  knowledge  of  the  intricate 
problems  involved  in  marine  insurance  he  will  do  well  to  give  the 
placing  of  his  insurance  into  the  hands  of  some  competent  broker. 
The  subject  of  brokers  will  be  given  further  consideration  in  a 
later  chapter.  It  will  suffice  to  remark  here  that  a  competent 
broker  should  have  the  same  technical  knowledge  and  training 


100  MARINE  INSURANCE 

lis  an  underwriter.  Much  progress  in  underwriting  has  resulted 
from  the  demands  of  brokers  for  new  forms  of  protection,  but  on 
the  other  hand  the  demands  of  brokers  controlling  large  volumes 
of  business  have  caused  underwriters  at  times  to  depart  from 
sound  underwriting  principles.  The  broker  occupies  an  anoma- 
lous position.  He  is  employed  by  the  assured  but  is  i)ai(l  by  the 
underwriter  and  accordingly  occupies  the  invidious  position  of 
trying  to  please  both  parties  to  the  insurance  contract. 

The  Insurance  Application. — In  placing  insurance  whether  it 
be  an  open  contract  or  a  special  insurance,  the  basis  of  the 
contract  is  the  insurance  application.  If  a  merchant  wishes  to 
insure  100  cases  of  dry  goods  from  New  York  to  Bombay,  he 
goes  to  an  insurance  company  directly  or  through  his  broker  and 
fills  out  a  printed  form  providing  spaces  for  the  name  of  the 
assured,  for  the  account  on  whose  behalf  the  insurance  is  desired 
and  for  the  payee  of  any  possible  loss.  Spaces  are  also  provided 
for  the  amount  of  insurance  desired,  the  number  of  packages  and 
kind  of  goods,  the  name  of  the  carrying  vessel,  the  points  of 
shipment  and  the  destination.  The  approximate  date  of  ship- 
ment or  of  the  sailing  of  the  vessel  should  also  be  given  (see  appli- 
cation form  Appendix,  p.  370). 

Binders  and  Inquiries. — Having  filled  out  this  application  form 
in  duplicate,  the  assured  or  the  broker  presents  it  to  the  under- 
writer who  considers  the  facts  presented,  and  then  turns  to  the 
classification  society  books  or  to  his  own  private  records  for  a 
description  of  the  vessel.  He  then  either  names  a  rate  and 
indicates  the  conditions  under  which  he  will  grant  insurance  or 
declines  the  risk.  If  the  rate  and  conditions  are  acceptable  to  the 
assured  or  broker  he  will  sign  the  original  application,  hand  the 
forms  to  the  underwriter  who  initials  the  duplicate  returning 
it  to  the  assured  or  broker,  and  a  binding  contract  of  insurance  has 
been  entered  into.  All  that  now  remains  to  be  done  is  for  the 
underwriter  to  fill  out  the  formal  policy  of  insurance  which  he 
signs  and  delivers  to  the  assured  or  his  broker.  It  may  be  that 
the  assured  or  his  broker  will  wish  time  in  which  to  consider  the 
rate  and  conditions  quoted,  in  which  case  the  application  forms 
will  not  be  signed  but  one  copy  will  be  retained  by  the  under- 
writer on  a  "not  binding"  file.  This  is  merely  an  inquiry  for 
and  a  quotation  of  a  rate  and  in  marine  insurance  terminology  is 


THE  CONTRACT  OF  MARINE  INSURANCE  101 

known  as  an  "inquiry."  This  quotation  like  any  other  offer 
must  be  accepted  within  a  reasonable  time  or  the  underwriter 
may  limit  the  time  within  which  acceptance  may  be  made. 
The  underwriter  may  withdraw  the  quotation  at  any  time  prior 
to  actual  acceptance.  The  same  procedure  is  followed  whether 
the  insurance  desired  relates  to  hull,  freight  or  cargo  and  is  for  a 
special  risk  or  for  contemplated  risks  to  be  insured  under  an 
open  contract. 

The  Policy. — The  policy  which  is  issued  by  the  underwriter  as 
the  formal  evidence  of  the  contract  is  one  of  the  quaintest  docu- 
ments extant.  For  over  three  hundred  years  the  basic  or  skeleton 
form  of  this  contract  has  changed  but  little.  Additions  have 
been  made,  it  is  true,  but  these  to  the  lay  mind  have  tended 
rather  to  confuse  than  to  clarify  its  meaning.  The  present 
Lloyd's  form  differs  little  from  the  copy  of  the  "Tiger"  policy 
issued  in  1613  found  in  the  Bodleian  Library  at  Oxford  and  the 
forms  used  in  the  United  States  are  merely  adaptations  of 
Lloyd's  policy  modified  to  meet  American  law  and  practice. 
The  form  of  expression  is  that  of  an  age  long  since  past  and  the 
enumeration  of  the  perils  insured  against  is  evidence  that  thqy 
were  added  one  by  one  as  occasion  demanded.  They  follow 
each  other  in  no  logical  order,  war  and  marine  perils  appearing  in 
indiscriminate  sequence.  Much  as  the  form  has  been  amended 
by  the  addition  of  modifying  clauses,  no  one  has  attempted  to 
change  the  basic  wording  of  the  form.  It  may  be  said  without 
undue  violence  to  the  truth,  that  every  word  in  the  basic  form 
has  been  weighed  in  the  judicial  balance  and  its  meaning  de- 
termined. Quaint  as  the  document  is,  there  is  no  doubt  as  to 
its  meaning,  and  any  material  change  might  greatly  weaken  its 
force. 

Rules  for  Construction. — The  great  body  of  laws,  customs  and 
decisions  which  has  been  gathered  round  this  basic  form  of 
policy  give  evidence  and  definition  of  the  principles  and  practice 
of  marine  insurance.  No  clause  should  be  added  to  the  form  nor 
should  any  deletion  be  made  until  careful  thought  has  been 
given  to  the  effect  of  the  addition  or  subtraction  on  the  remainder 
of  the  contract,  in  the  light  of  these  principles  and  practices. 
A  considerable  body  of  rules  for  the  construction  of  the  policy 
has  developed,  some  of  which  are  applicable  to  the  interpretation 


102  MANIXK  IXSUlxWXCI'J 

of  all  contracts,  while  others  apply  specially  to  marine  insurance 
contracts.  A  more  extended  consideration  of  these  rules  will  be 
helpful  to  a  clear  imderstanding  of  the  policy  itself. 

Usage. — When  it  is  recalled  that  the  law  relating  to  marine  in- 
surance is  largely  an  acceptance  and  adaptation  of  the  customs  of 
merchants  it  is  not  strange  that  usage  controls  to  a  great  extent 
the  meaning  of  marine  policies.  The  parties  concerned  may  of 
course  so  draw  the  contract  that  its  obvious  import  is  to  override 
and  overrule  the  ordinary  usage  in  connection  with  similar  trans- 
actions, and  so  far  as  such  contracts  do  not  conflict  with  the  law 
they  are  perfectly  proper  and  will  be  enforced  as  written.  That 
is  to  say,  usage  is  only  brought  into  evidence  where  it  is  required 
to  give  proper  meaning  and  force  to  the  contract. 

Mercantile  Customs. — Owing  to  the  fact  that  custom  plays  such 
an  important  part  in  mercantile  transactions  and  especially  in 
marine  insurance  contracts  it  is  necessary  in  many  cases  to  go 
outside  of  the  contract  itself  in  order  to  determine  the  intention  of 
the  parties.  It  would  be  manifestly  inpracticable  to  incorporate 
into  each  policy  the  customs  and  usages  of  the  particular  trade 
to  which  the  insurance  relates  and  in  the  absence  of  affirmative 
evidence  indicating  that  the  voyage  was  to  be  conducted  in  some 
particular  way,  it  will  be  presumed  that  the  usual  course  and 
customs  of  the  trade  are  to  be  followed.  This  does  not  mean, 
however,  that  extrinsic  evidence  is  to  be  read  into  a  marine  policy 
to  show  that  the  intent  of  the  parties  was  different  from  the  fair 
meaning  of  the  words  used.  It  does  mean  that  a  short  phrase 
describing  a  voyage  for  instance  as  a  trading  voyage  to  West 
Africa  carries  with  it  liberty  to  touch  and  stay  for  the  purposes  of 
ordinary  trading  at  the  usual  trading  stations  along  the  West 
African  Coast. 

Printed,  Written  and  Stamped  Words. — All  policies  consist  in 
part  of  printed  and  in  part  of  written  or  stamped  words.  The 
printed  part  expresses  that  which  is  common  to  all  marine  poli- 
cies. The  written  or  stamped  portions  set  forth  those  facts  and 
agreements  pecuUar  to  the  particular  policy.  It  therefore  is 
presumed  that  the  written  or  stamped  portion  was  the  subject 
of  special  consideration  by  the  parties  and  when  in  conflict 
with  the  printed  words,  overrules  or  controls  them.  It  is  these 
written  or  stamped  words  and  clauses  which  give  rise  to  most  of 


THE  CONTRACT  OF  MARINE  INSURANCE  103 

the  disputes  in  regard  to  the  interpretation  of  policies.  Tlie 
meaning  of  the  printed  form  is  well  known,  but  who  can  know 
what  will  be  the  effect  of  some  ill  considered  clause  which  is  de- 
manded by  an  assured  because  he  thinks  it  gives  him  increased 
protection.  It  may  be  so  worded  as  to  invalidate  some  of  the 
printed  or  implied  terms  of  all  marine  policies  and  leave  him  with 
less  protection  than  he  would  have  had  with  a  policy  in  the 
usual  form. 

The  Intention  of  the  Parties.  Technical  Words. — The  in- 
tention of  the  parties  to  the  contract  should  govern  the  meaning 
of  the  contract.  This  intention  must  be  determined  from  the 
words  as  expressed.  The  words  used  may  permit  of  more  than 
one  interpretation  and  it  must  be  determined  from  the  intention 
of  the  parties  which  of  the  several  meanings  was  the  one  intended. 
Policies  cannot  be  construed  contrary  to  the  fair  meaning  of  the 
words  and  expression  used,  but  if  it  can  be  clearly  established  that 
the  words  and  expressions  used  do  not  embody  the  intention  of 
the  parties,  the  contract  may  be  reformed  so  as  to  express  such 
intention.  The  meaning  of  technical  or  pecuUar  words  is  pre- 
sumed to  be  the  interpretation  which  those  words  have  acquired 
by  usage  in  similar  commercial  transactions. 

Extrinsic  Evidence. — The  question  is  often  raised  whether  or 
not  oral  or  written  negotiations  entered  into  before  the  formal 
wiitten  contract  was  executed,  shall  in  any  way  be  read  into 
the  contract  to  explain  the  intention  of  the  parties.  The  com- 
mon rule  and  the  only  safe  one  to  follow  is  that  all  negotiations 
prior  to  the  issuance  of  the  formal  contract  are  waived  and  the 
policy  as  written  and  accepted  by  the  assured  stands  as  the  em- 
bodiment of  all  the  terms  and  conditions  of  the  contract.  It  is, 
however,  possible  by  reference,  definite  and  descriptive,  to  make 
the  policy  subject  to  some  extrinsic  document  containing  material 
facts  in  connection  with  the  risk.  Such  references  are  scrutinized 
with  the  greatest  care  and  are  admitted  as  evidence  only  where 
it  is  clearly  the  intention  of  both  parties,  that  this  parol  evidence 
be  admitted.  Oral  evidence  is  never  admitted  to  vary  the  terms 
of  a  contract,  but  in  some  cases  it  may  be  received  to  explain 
the  meaning  of  the  words  used. 

Does  the  Application  Control  the  Policy? — The  basis  of  the 
policy  as  already  explained   is   the  insurance  apphcation  signed 


101  MARINE  INSURANCE 

or  initialed  by  l)()th  iKulics.  'J'he  question  naturally  arises 
wht'tlu'r  or  not.  tliis  ajiplication  in  any  way  controls  the  formal 
policy  wiien  issued.  In  the  ordinar^^  transaction  an  application 
is  made  on  a  form  furnished  by  the  underwriter,  containing  in 
part  the  i)rinted  clauses  appearing  on  the  policy,  and  in  such  a 
case  the  only  conflict  between  policy  and  application  would  be  a 
mistake  in  transferring  the  information  on  the  application  to 
the  policy.  Underwriters  are  usually  prompt  in  correcting 
such  errors,  and  if  they  should  object  would  be  judicially  com- 
pelled to  make  the  correction.  If,  however,  the  application  has 
been  bound  on  a  forjn  prepared  by  the  assured  containing  strange 
or  unusual  clauses,  but  the  policy  when  issued  is  on  the  under- 
writer's customary  form,  then  it  is  more  difficult  to  determine 
whether  or  not  the  application  can  be  read  in  to  change  the  terms 
of  the  policy.  As  a  matter  of  equity  it  seems  fair  that  an 
underwriter  should  be  bound  by  the  application  which  he  signed; 
as  a  matter  of  pure  law  the  question  is  doubtful,  A  court  of 
equity  would  probably  decree  that  the  policy  be  changed  to 
conform  to  the  terms  of  the  application,  unless  the  underwriters 
could  show  that  their  attention  was  not  directed  to  these  strange 
and  unusual  clauses  and  that  they  had  not  noticed  them.  In 
such  case  it  might  be  decreed  that  the  minds  of  the  parties  had 
not  met  and  that  there  was  no  valid  contract. 

The  Law  of  the  Place. — It  is  a  general  rule  of  the  law  of  con- 
tracts that  an  agreement  is  held  to  be  made  in  accordance  with 
the  laws  of  the  place  where  the  contract  is  drawn  up  and  is  to 
be  interpreted  in  conformity  with  such  laws.  This  rule  becomes 
important  in  the  consideration  of  contracts  made  in  one  state  or 
country  but  to  be  executed  in  another.  It  has  been  held  by  the 
Supreme  Court  of  the  United  States  that  an  insurance  company 
can  make  contracts  by  mail  and  that  such  contracts  are  not 
amenable  to  the  law  of  the  State  where  the  contract  is  to  be 
executed.  Several  of  the  states  have  endeavored  to  bring  such 
insurance  contracts  under  their  control  for  purposes  of  taxation, 
but  the  law  would  seem  to  be  clear  in  this  respect.  This  question 
often  arises  in  connection  with  certificates  issued  under  contracts 
of  insurance,  which  certificates  are  not  valid  unless  counter- 
signed by  the  assured  who  is  domiciled  in  another  state.  If 
the  issuance  of  such  certificate  is  the  actual  making  of  the  con- 


THE  CONTRACT  OF  MARINE  INSURANCE  105 

tract  it  would  seem  clear  that  the  contract  is  subject  to  the  laws 
of  the  state  where  the  certificate  is  countersigned.  Where, 
however,  the  countersignature  of  the  certificate  in  no  sense  is 
the  making  of  a  contract,  but  is  merely  the  validation  of  formal 
evidence  of  a  contract  already  made,  i.e.,  the  open  policy,  it 
seems  equally  clear  that  the  laws  of  the  state  where  the  open 
policy  was  issued  control  the  contract. 

The  Cancellation  and  Modification  of  Contracts. — Contracts 
of  insurance  being  entered  into  by  mutual  agreement  of  the 
parties  may  be  cancelled  or  modified  only  by  their  mutual 
consent.  Such  consent  should  be  in  writing  and  may  be  shown 
either  by  having  a  cancellation  clause  written  across  the  original 
application  and  this  clause  signed  or  initialed  by  both  the  assured 
and  the  underwriter,  or  a  regular  form  of  cancellation  (see  ap- 
pendix, page,  372)  may  be  filled  out  in  dupHcate  by  the  assured 
or  his  broker  setting  forth  the  reason  for  the  cancellation  and 
outlining  the  particulars  of  the  original  insurance  so  that  no 
doubt  may  exist  as  to  the  insurance  to  which  the  request  for 
cancellation  refers.  One  copy  of  the  cancellation  notice  is 
signed  by  the  assured  and  retained  by  the  underwriter  and  the 
other  is  signed  by  the  underwriter  and  retained  by  the  assured. 
If  the  policy  has  been  issued,  it  is  surrendered  to  the  under- 
writer who  then  makes  the  necessary  cancellation  on  his  records. 
In  some  instances  the  cancellation  clause  may  be  written 
across  the  face  of  the  policy,  both  parties  signing  it,  although 
the  policy  itself  is  only  signed  by  the  underwriter.  Altera- 
tions in  the  contract  are  similarly  made.  No  writing  on  the 
policy  other  than  such  as  is  assented  to  and  initialed  by  the  under- 
writer is  of  any  force  or  effect  as  against  the  underwriter,  although 
it  may  result  in  voiding  the  contract  with  respect  to  the  rights  of 
the  assured.  When  a  contract  has  been  made,  but  has  not  be- 
come operative,  the  assured  may  by  preventing  the  commence- 
ment of  the  risk,  in  effect  dissolve  the  contract.  In  no  other 
way  can  the  assured  without  the  consent  of  the  underwriter  re- 
lease himself  from  his  bargain.  The  underwriter  on  the  other 
hand  may  prevent  such  a  result  by  requiring  the  assured  to 
agree  that  there  shall  be  no  return  premium  for  cancellation  or 
short  interest.  Such  an  agreement  is  justifiable  because  the 
underwriter  by  accepting  insurance  by  a  named  vessel  for  one 


10(3  MAIi'LWE  INSURANCE 

merchant  restricts  by  that  amount  his  underwriting  capacity 
availaljlo  for  others. 

The  Assignment  of  Policies.  Certificates.^ — Tlic  subject  of 
the  assignment  of  policies  is  one  that  is  not  altogether  free  from 
doubt.  It  is  a  general  rule  of  law  that  a  contract  that  does  not 
involve  the  question  of  the  parties  themselves  may  be  assigned, 
the  assignee  taking  the  place  of  the  assignor  with  respect  to  the 
benefits  and  obligations  of  the  contract.  The  decisions  in  regard 
to  the  assignment  of  policies  are  not  all  in  agreement,  but  as  a 
matter  of  principle,  aside  from  the  question  of  law,  it  does  not 
seem  just  that  an  underwriter  contracting  with  one  person, 
should  be  forced  without  his  consent  into  contractual  relations 
with  another.  Of  course,  if  the  contract  reads  for  account  of 
"whom  it  may  concern"  as  so  many  insurance  policies  do,  there 
may  be  room  for  doubt  as  to  the  assignability  of  the  policy,  but 
even  in  this  case  if  the  assured  is  divested  of  his  interest  or  his 
relation  to  the  insured  subject,  there  would  seem  to  be  consider- 
able doubt  as  to  whether  the  contract  should  inure  to  the  benefit 
of  a  third  party.  It  is  quite  usual  to  avoid  such  question  arising, 
to  have  inserted  in  policies,  a  clause  making  an  assignment  void 
unless  assented  to  by  the  underwriter.  However,  even  in  the 
absence  of  such  stipulation,  it  is  prudent  to  have  the  underwriter 
assent  to  the  assignment.  Obviously,  if  loss  is  made  payable  to 
the  assured  or  order,  the  underwriter  agrees  in  advance  to  the 
payment  of  a  loss  to  some  undisclosed  person,  but  nevertheless, 
it  would  seem  that  at  the  time  of  the  loss  the  assured  must  have 
had  an  insurable  interest  in  the  property.  Insurance  certificates, 
are  issued  for  the  purpose  of  transferring  insurance  and  are  quasi- 
negotiable.  The  insurance  being  transferred  by  endorsement, 
the  holder  of  the  certificate  receives  all  the  rights  of  the  original 
assured,  but  also  assumes  all  liabilities  that  may  have  attached 
to  the  insurance,  as  for  example  liability  for  unpaid  premiums. 
Even  this  liability  is  waived  in  many  cases  by  underwriters  who 
stipulate  in  the  certificate,  that  with  respect  to  a  third  party 
holder  of  the  certificate  all  liabihty  for  unpaid  premium  is 
waived. 

Clarity  Essential  in  the  Writing  of  Policies. — The  only  safe 
rule  to  follow  in  the  writing  of  insurance  contracts  is  to  have  the 
facts  in  relation  to  the  insurance  so  clearly  set  forth  in  the  poHcy, 


THE  CONTRACT  OF  MARINE  INSURANCE  107 

that  it  is  not  necessary  to  have  recourse  to  the  rules  of  construc- 
tion for  explanation.  Inconsistencies  should  be  reconciled  and 
ambiguities  clarified  at  the  time  of  issuing  the  contract  so  that 
in  the  event  of  loss  the  only  necessary  acts  to  be  performed  will 
be  the  presentation  of  the  proofs  of  loss,  the  adjustment  of  the 
claim  and  the  drawing  of  the  check  in  payment  thereof. 


CHAPTER  6 

THE  POLICY.  •  ASSURER  AND  ASSURED 

Types  of  Policies. — There  are  many  types  of  policies  in  use  in 
the  insurance  of  marine  and  transportation  risks.  These 
various  forms  differ  widely  in  much  of  their  phraseology,  yet  all 
are  merely  the  outgrowth  and  development  of  the  original  form 
of  marine  policy  which  has  been  in  use  for  centuries.  This  fact 
will  reatlily  appear  from  an  examination  of  the  various  types  of 
policies  in  each  of  which  will  be  found  phrases  and  clauses  com- 
mon to  all.  Among  the  various  types  of  policies  in  use  are  those 
insuring  cargoes  both  as  individual  risks,  known  as  special 
policies,  and  under  open  contracts  called  floating  policies.  Special 
types  of  cargo  policies  are  in  use  for  the  insurance  of  certain 
commodities  such  as  cotton,  grain  or  refrigerated  products. 
Other  types  of  cargo  policies  are  seen  in  the  blanket  and  transit 
floater  policies  which  are  in  general  use  in  connection  with 
coastwise  and  inland  marine  insurance.  The  insurance  of  vessels, 
hull  insurance  as  it  is  known,  has  developed  various  types  of 
policies.  Some  of  these  are  general  in  their  application  being 
used  for  all  kinds  of  hull  risks,  while  others  are  limited  in  their 
scope.  Thus  general  steamer  forms,  and  those  adapted  to  special 
trades  as  Great  Lakes  or  River  traffic  are  found,  while  in  the 
insurance  of  sailing  vessels,  forms  are  provided  for  vessels  de- 
pending for  power  on  their  sails  alone  and  those  equipped  with 
auxiliary  engines.  Vessel  forms  are  also  in  use  for  the  insurance 
of  port  risks  and  for  the  insurance  of  vessels  while  being  built 
or  repaired.  The  insurance  of  freight,  commissions,  profits  and 
other  special  interests  requires  special  clauses  which  may  be 
embodied  in  separate  forms  of  policies  or  these  interests  may  be 
insured  under  cargo  forms  containing  modifying  clauses.  There 
are  also  liability  forms  issued  to  the  common  carriers  under 
which  the  insurable  interest  is  not  cargo,  but  the  liability,  either 
implied  b}'  law  or  assumed  by  contract,  of  the  carriers  for  cargo 
in  their  custody. 

108 


THE  POLICY.     ASSURER  AND  ASSURED  109 

Form  of  Policy. — There  is,  in  the  United  States,  no  standard 
form  of  poHcy  required  by  law  for  use  in  connection  with  the 
issuance  of  marine  insurance  contracts.  Each  company,  how- 
ever, has  its  own  skeleton  forms,  differing  from  one  another  in 
regard  to  some  words  or  expressions,  but  all  essentially  alike 
and  closely  following  the  forms  of  expression  which  have  stood 
the  test  of  time  and  have  received  judicial  interpretation.  The 
mere  fact,  however,  that  the  skeleton  forms  of  the  various  com- 
panies do  differ,  makes  it  necessary  for  the  assured  or  his  broker 
to  have  a  thorough  knowledge  of  the  different  forms  in  use,  so 
that  in  accepting  many  policies  of  different  companies,  each 
covering  part  of  the  same  risk,  no  conflict  may  exist  between  the 
several  policies  in  the  printed,  written  or  stamped  portions. 
The  form  of  policy  used  as  the  basis  of  this  explanation  is  the 
special  cargo  skeleton  form  in  use  by  one  of  the  New  York 
companies,  and  is  chosen  because  it  has  changed  but  little  in  the 
past  seventy-five  years  and  furnishes  a  good  basis  for  the  discus- 
sion of  the  underlying  conditions  of  all  marine  insurance.  The 
cargo  form  is  taken  because  it  is  more  used  than  the  hull  form,- 
but  the  basic  parts  of  policies  used  for  hull,  cargo  and  freight  are 
alike.  The  modifications  necessary  for  the  insurance  of  these 
different  interests  will  be  discussed  in  their  proper  places. 

British  Form  of  Policy. — The  relations  existing  between  the 
American  and  British  marine  insurance  markets  being  so  close, 
attention  will  be  called  from  time  to  time  to  the  salient  differences 
between  American  and  British  policies.  As  already  indicated 
the  British  marine  insurance  law  has  been  codified,  and  in  the 
Marine  Insurance  Act,  1906,  is  set  forth  in  considerable  detail 
the  rules  under  which  marine  insurance  is  written  in  Great  Britain. 
No  definite  form  of  policy  is  required  by  the  Act,  but  following 
it  there  is  set  forth  the  common  Lloyd's  form  of  policy  with  rules 
for  its  construction  and  this  is  the  form  in  general  use  in  Great 
Britain.     (See  Appendix  p.  411.) 

The  Assurer.' — Naturally  the  first  item  in  the  policy  is  the  name 
of  the  Insurance  Company,  the  party  of  the  first  part  to  the 
contract.  Underwriting  in  the  United  States,  as  already  indi- 
cated, is  conducted  almost  exclusively  by  incorporated  com- 
panies, acting  through  their  duly  elected  officers  or  their  ap- 
pointed agents.     Individual  underwriting  has  fallen  into  disuse. 


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THE  POLICY.     ASSURER  AND  ASSURED  111 

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^ 


112  MARINE  INSURANCE 

Our  nearest  approach  to  this  system  is  found  in  the  very  few 
Lloyd's  Associations,  where  individual  underwriters  severally 
underwrite  a  portion  of  the  total  line  covered  by  a  policy  issued 
by  their  joint  attorney.  Even  this  modified  form  of  individual 
underwriting  is  disappearing,  rcgularl}^  incorporated  companies 
succeeding  the  groups  of  individual  assurers.  The  underwriting 
scope  of  a  corporation  is  strictly  limited  by  its  charter,  but 
ordinarily  a  company's  activities  are  not  confined  to  any  one 
branch  of  insurance.  Power  is  granted  to  them  to  do  fire  as  well 
as  marine  insurance,  and  some  companies  have  even  a  more 
general  charter.  In  New  York  State,  at  least,  the  companies 
in  regard  to  their  marine  business,  are  not  limited  with  respect 
to  the  amount  which  they  may  carry  on  any  one  risk,  but  pru- 
dence naturally  sets  limits  which  ordinarily  are  much  less  than 
the  legal  restrictions  in  regard  to  fire  and  other  forms  of  insurance. 

The  Assured. — The  name  of  the  Assured  follows  the  name  of 
the  Company.  It  should  not  be  inferred  that  the  person,  firm  or 
corporation  named  as  the  assured  is  necessarily^  the  real  party 
at  interest,  as  insurance  may  be  taken  out  in  the  name  of  an 
agent.  However,  a  policy  must  be  taken  out  in  the  name  of  a 
person,  firm  or  corporation  who  directly  or  indirectly  has  an 
insurable  interest.  One  who  has  such  a  vested,  expected  or 
contingent  interest  in  the  subject  matter  that  he  will  be  benefited 
by  its  preservation  or  injured  by  its  loss  or  damage  has  an  in- 
surable interest  in  that  property.  Only  those  interested  in  the 
subject  matter  at  the  commencement  of  the  risk  under  the  policy 
can  be  original  parties  to  the  policy  and  they  continue  to  be 
parties  only  while  they  have  an  interest.  The  appointment  of 
one  person  as  the  agent  of  another  for  the  placing  of  insurance 
gives  that  person  sufficient  insurable  interest  in  the  property  to 
enable  him  to  effect  insurance  in  his  own  name  as  agent.  A 
policy  placed  by  an  agent  for  a  principal  without  the  latter's 
consent,  may  be  ratified  and  adopted  by  the  principal  at  any 
time,  even,  it  would  seem  after  loss  is  known  to  have  occurred. 
Insurance  placed  by  agents  will,  however,  be  applied  only  to  such 
principals  as  were  intended  at  the  time  the  insurance  was 
effected. 

Insurable  Interest  Must  be  an  Actual  One. — The  insurable 
interest  must  be  such  that  the  happening  of  any  of  the  perils 


THE  POLICY.     ASSURER  AND  ASSURED  113 

insured  against  might  directly  effect  the  interest  of  the  assured, 
rather  than  have  merely  a  remote  or  consecjucntial  effect.  For 
instance,  the  loss  of  a  full  cargo  of  grain  might  disturb  the  grain 
market,  yet  this  fact  would  not  give  an  insurable  interest  in 
the  grain  at  risk  to  any  except  those  who  would  be  directly  effected 
by  the  loss  of  that  particular  grain.  This  does  not  mean  that 
one  whose  relation  to  the  subject  matter  is  conditional,  does 
not  have  insurable  interest,  for  an  interest  which  is  real  and  exists 
when  the  insurance  is  applied  for  but  may  be  defeated  by  the 
happening  of  some  contingency  is  insurable.  Such  an  interest, 
however,  should  be  definitely  described.  Several  different  per- 
sons may  have  insurable  interests  in  the  same  subject  matter, 
each  having  a  different  interest,  not  conflicting  with  the  interests 
of  the  others.  However,  a  mere  expectant  interest  in  the  sub- 
ject matter,  not  founded  on  any  legal  right  or  title  does  not  give 
a  person  such  an  insurable  interest  in  property  as  may  be  covered 
by  a  policy  of  insurance. 

Extent  of  the  Insurable  Interest. — The  insurable  interest  need 
not  exist  at  the  time  the  insurance  contract  is  made.  Merchants 
make  contracts  to  automatically  cover  their  future  transactions, 
but  it  is  essential  to  a  recovery  under  the  policy  that  the  assured 
have  an  insurable  interest  at  the  time  of  the  loss.  While  it  has 
been  stated  that  an  insurance  policy  insures  the  person  and  not 
the  thing,  the  policy  only  protects  the  person  with  respect  to  his 
pecuniary  interest  in  the  thing  itself.  Without  the  existence  of 
the  thing  and  without  a  definite  relation  existing  between  the 
person  and  the  thing  no  insurable  interest  exists.  It  is  not 
necessary  that  the  assured  be  interested  to  the  extent  of  the  whole 
value  of  the  subject  matter.  Any  interest,  however  slight,  if 
definite  and  legal  may  be  insured,  as  for  instance  the  commissions 
which  a  commission  merchant  will  earn  if  the  goods  arrive  safely 
so  that  he  can  attend  to  their  distribution.  The  number  of 
insurable  interests  which  exist  with  respect  to  the  same  subject 
matter  may  be  numerous,  but  the  sum  total  of  all  the  insurance 
on  these  various  interests  should  not  exceed  the  total  pecuniary 
value  of  the  property  itself  or  the  value  contingent  upon  its 
continued  existence.  This  sum  should  be  the  total  amount 
recoverable  in  the  event  of  the  destruction  of  the  subject  matter 
of  these  various  insurances.     It  should  never  be  possible  for 


114  MAJilSE  IXSURANCE 

(wo  parties  each  to  collect  the  value  of  the  destroyed  property. 
It  is,  therefore,  necessary  that  the  iiolicies  covering  different  in- 
terests do  not  overlap,  otherwise  double  insurance  will  exist. 

Persons  Who  Have  Insurable  Interests. — Among  the  many 
classes  of  persons  who  may  have  an  insurance  interest  in  property, 
and  who  may  therefore  effect  insurance  in  their  own  names,  or  those 
upon  whose  behalf  valid  insurance  may  be  written  in  the  name  of 
a  duly  authorized  agent,  the  following  may  be  mentioned,  i.e. 

Owners. — It  is  self-evident  that  he  in  whom  the  legal  title  is  vested 
may  insure  the  property. 

Managing  Oioners. — In  many  cases  the  ownership  of  sailing  vessels 
and  steamers  is  divided  into  sixty-four  or  it  may  be  two  hundred  and 
fifty-six  or  some  other  number  of  sliares.  The  individual  owners  may 
have  no  voice  at  all  in  the  management  of  the  vessel,  but  one  of  the  part 
owners  is  intrusted  by  the  others  with  the  conduct  of  the  property. 
To  avoid  detail,  this  managing  owner,  as  he  is  called,  may  be  charged 
with  the  duty  of  insuring  the  vessel  and  takes  insurance  in  his  own 
name  for  account  of  whom  it  may  concern,  an  expression  which  will  be 
presently  explained,  but  in  this  particular  case  referring  to  himself 
and  his  co-owners. 

Mortgagee. — Commercial  transactions  are  conducted  largely  on  credit, 
and  vessels,  like  other  forms  of  wealth,  are  often  mortgaged  for  a  con- 
siderable part  of  their  value.  The  lender  of  money  either  on  cargo  or 
vessel  has  an  insurable  interest  in  the  property  to  the  amount  of  his 
loan,  but  may  effect  insurance  for  the  full  value  for  the  benefit  of  all 
concerned. 

Consignee. — Goods  are  often  shipped  on  consignment  for  sale,  the 
property  being  at  the  risk  of  the  consignee,  the  latter  paying  for  the 
property  not  a  fixed  sum  determined  by  an  invoice  but  a  definite  per- 
centage of  the  proceeds.  In  such  cases  the  consignee  has  an  insurable 
interest  to  the  extent  of  the  full  value  of  the  goods. 

Factor  or  Commission  Merchant. — Such  persons  have  an  insurable 
interest  to  the  extent  of  their  expected  profits  or  commissions,  if  these  be 
dependent  on  the  continued  existence  and  safety  of  the  property. 

Trustee  for  Creditors. — The  owner  of  property  may  become  bankrupt 
or  may  make  an  assignment  for  the  benefit  of  creditors,  in  which  case 
the  trustee  in  bankruptcy  or  the  assignee  obtains  an  insurable  interest 
for  the  benefit  of  all  concerned. 

Agent. — An  agent,  provided  his  authority  is  broad  enough,  always 
has  such  an  insurable  interest  that  he  can  take  insurance  in  his  own 
name,  but  the  policy  should  set  forth  the  agency. 


THE  POLICY.     ASSURER  AND  ASSURED  115 

Charterer. — A  vessel  may  be  chartered  under  an  agreement  that  the 
charterer  assumes  full  responsibility  for  the  vessel,  as  in  the  case  of  a 

bare  ship  charter."  In  such  case  the  charterer  has  an  insurable  interest 
and  may  insure  in  his  own  name.  The  charterer  always  has  an  insurable 
interest  in  the  earnings  of  the  vessel,  depending  of  course  on  the  terms  of 
the  charter.  The  charterer  also  has  an  insurable  interest  on  the 
"profits  on  charter"  being  the  difference  between  the  hire  he  pays  for 
the  use  of  the  vessel  and  the  amount  he  will  earn  by  the  carriage  of  goods 
under  bill  of  lading. 

Repair  Yard. — When  a  vessel  is  sent  to  a  yard  for  repairs,  the  con- 
tractor may  assume  responsibility  for  certain  perils  which  may  overtake 
the  vessel  while  under  his  control.  He  therefore  has  an  insurable 
interest  in  the  vessel  with  respect  to  these  perils. 

Common  Carrier. — A  common  carrier  transporting  property  is  re- 
sponsible under  the  law  for  the  safe  delivery  of  the  goods  to  the  con- 
signee, except  in  so  far  as  it  may  be  relieved  of  this  responsibility  by 
law,  as  in  the  case  of  the  "Harter  Act,"  with  respect  to  ocean  commerce. 
For  an  increased  rate  a  carrier  may  agree  to  assume  liability  for  loss 
caused  by  risks  for  which  he  is  not  legally  responsible  or  he  may  agree, 
upon  the  order  of  the  shipper  or  consignee,  to  procure  insurance  on  the 
property  while  in  transit  over  his  lines  or  those  of  connecting  carriers. 
A  carrier  therefore  by  virtue  of  his  legal  responsibility  or  his  assumed 
responsibility  has  a  valid  insurable  interest  in  the  property  in  his 
custody. 

Bottomry  and  Respondentia. — The  lender  under  a  bottomry  or  re- 
spondentia bond  has  an  insurable  interest  in  the  property  to  the  extent 
of  his  loan,  since  in  the  event  of  the  loss  of  the  property  the  debtor 
will  be  discharged  from  his  obligation  to  repay  the  loan. 

The  borrower  under  a  bottomry  or  respondentia  bond  also  has  an 
insurable  interest,  but  only  for  the  amount  by  which  the  value  of  the 
property  exceeds  the  amount  borrowed,  since  in  the  event  of  loss  he  \\i\\ 
not  suffer  with  respect  to  the  amount  borrowed,  this  loss  falling  on  the 
lender.  If,  however,  the  bond  provides  that  the  borrower  shall  be 
discharged  from  his  debt  only  in  the  event  of  loss  caused  by  certain 
specified  perils,  he  has  an  insurable  interest  to  the  full  value  of  the 
property  against  all  other  perils. 

Bottomry  and  Respondentia  loans  are  very  rare  in  modern  prac- 
tice and  are  confined  to  loans  made  at  a  port  of  refuge  to  pay  for  dis- 
bursements made  to  enable  the  vessel  to  continue  her  voj^age.  The  loan 
is  made  to  the  master  of  the  vessel  on  the  security  of  the  vessel  or  the 
cargo  or  both,  and  does  not  as  a  practical  matter  affect  the  insurable 
interest  of  the  hull  or  cargo  owner. 

Reinsurance. — An  underwriter  having  assumed  the  risks  to  which 


1 1 B  ;/.t  /.7.\7';  INSURANCE 

tlio  aMured's  property  is  subject,  has  a  valid  insurable  interest  in  such 
|)n)i)erty,  and  may  reduce  his  liability  by  reinsuring  the  whole  or  any 
part  of  it  against  all  or  part  of  the  risks  for  which  he  has  assumed 
liability.  The  original  assured,  however,  has  no  right  to  or  interest  in 
such  reinsurance. 

"For  Account  of." — No  part  of  the  marine  insurance  policy  is 
more  iini)()rtant  or  requires  greater  care  in  its  wording  than  does 
the  pluase  following  the  name  of  the  assured  and  reading  "for 
account  of. "  In  this  blank  space  should  be  inserted  by  name  or 
by  description  all  the  parties  who  are  interested  in  the  insured 
subject.  In  tlie  case  of  individual  or  special  insurance  the 
problem  is  often  very  simple  as  the  assured  may  desire  the  pro- 
tection to  be  merely  for  account  of  himself,  no  third  party  or 
parties  being  interested  in  the  transaction.  Where,  however,  an 
open  contract  is  desired  which  will  cover  all  property  which  n)ay 
be  received  by  a  merchant  the  most  careful  wording  is  necessary 
in  order  to  make  the  contract  cover  all  the  property  in  which  the 
merchant,  as  owner,  or  as  consignee  with  orders  to  insure,  is  in- 
terested, or  for  which  he  may  be  directly  or  indirectly  responsible. 
It  is  squally  important  that  the  policy  be  not  made  "a  catch  all" 
apparently  covering  property  to  which  the  relation  of  the  assured 
is  not  clearly  defined.  It  often  happens  that  a  merchant  will 
wish  to  cover  under  an  open  or  floating  policy  only  a  portion  of 
the  merchandise  which  may  be  shipped  to  him,  or  only  such  goods 
as  may  be  shipped  under  special  conditions,  as  for  instance 
merchandise  purchased  under  letters  of  credit  issued  by  a  named 
bank.  In  such  circumstances  it  is  necessary  that  the  floating 
policy  be  so  worded  as  to  provide  for  nothing  but  the  shipments 
on  which  insurance  is  desired.  A  considerable  degree  of  skill 
is  required  to  so  word  this  portion  of  the  policy  that  dispute  will 
not  arise  in  determining  whether  the  assured  is  entitled  to 
receive  reimbursement  for  a  loss  which  may  have  occurred, 
or  whether  the  underwriter  is  entitled  to  premium  on  risks  which 
the  assured  has  failed  to  declare. 

Attachment  of  Policy. — As  the  question  of  the  passing  of  title 
is  often  one  of  considerable  importance  and  may  be  difficult  of 
proof,  it  is,  in  many  cases,  prudent  to  insert  at  this  point  in  the 
policy,  a  definite  description  of  the  time  at  which  the  policy  will 
attach.     For  instance,  in  the  raw  sugar  trade  the  policy  may  be 


THE  POLICY.     ASSURER  AND  ASSURED  117 

made  to  attach  when  the  sugar  is  bagged  and  set  aside  for  the 
assured,  while  in  the  raw  cotton  trade  it  may  be  made  to  attach 
"from  the  moment  the  cotton  becomes  the  property  of  the  assured 
or  legally  at  their  risk,  provided,  however,  that  no  cotton  shall  be 
covered  hereunder  prior  to  actual  delivery  to  the  assured  or  their 
agents,  unless  specifically  identified  by  marks  and  numbers  or 
other  designation  in  possession  of  the  assured  or  mailed  to  the 
assured  prior  to  loss." 

Description  of  Insurable  Interest  Should  be  Definite. — If  the 
assured  wishes  to  cover  property  of  others  which  he  may  be  or- 
dered to  insure,  provision  should  be  made  that  such  orders 
be  in  writing  and  mailed  to  the  assured  prior  to  the  time  the  ship- 
ment is  made.  Underwriters,  by  insisting  on  a  careful  descrip- 
tion of  the  interested  parties  and  of  the  time  at  which  the  goods 
are  to  come  under  the  protection  of  the  policy,  are  not  endeavor- 
ing to  insert  technicalities  of  which  they  can  avail  themselves  to 
avoid  payment  of  loss.  They  are  merely  trying  to  so  word  their 
policies  that  there  may  be  no  question  of  the  risks  for  which  they 
are  liable  to  the  assured  and  of  the  premiums  for  which  the  as- 
sured are  liable  to  the  underwriters.  Too  often  the  assured,  per- 
haps through  an  honest  mistake,  has  failed  to  declare  risks  to 
underwriters  and  to  pay  premiums  thereon,  but  in  the  event  of 
loss  on  a  similar  risk  he  has  made  a  claim  under  the  policy  and 
insisted  on  payment  of  the  loss.  In  such  cases,  of  course,  pay- 
ment of  the  premium  on  the  unreported  risks  can  be  claimed  by 
the  underwriter,  but  where  a  loss  does  not  reveal  the  mistake  or 
omission  the  underwriter  suffers.  It  is  only  by  the  continuous 
flow  of  premium  to  the  underwriter  that  he  can  respond  for  losses, 
and  policies  should  be  so  clearly  drawn  that  no  doubt  can  exist 
in  the  mind  of  either  the  assured  or  the  underwriter  of  their 
respective  duties  and  liabilities. 

An  Insurable  Interest  Must  Exist. — There  is  another  problem 
in  connection  with  the  description  of  the  assured  which  cannot 
be  ignored  in  view  of  the  revelations  of  unfair  dealing  in  the 
procurement  of  marine  insurance  policies  which  are  still  fresh  in 
the  public  mind.  It  formerly  was  possible  in  New  York  State, 
at  least,  for  a  broker  or  ship  agent  to  contract  for  large  amounts 
of  insurance  on  cargo  by  a  named  vessel  when  the  so-called 
assured  had  no  property  at  risk,  and  had  no  intention  of  shipping 


118  M ARISE  JXSURANCE 

goods  by  the  vessel  in  question.  Having  obtained  advance 
information  that  a  certain  steamer  was  to  load  for  a  port  for 
which  freight  space  was  in  great  demand,  this  broker  or  ship 
agent  would  enter  the  marine  market  and  bind  at  low  rates  all 
the  available  underwriting  capacity.  When  the  vessel  arrived 
and  began  to  load  her  cargo  the  legitimate  shipper  would  dis- 
cover that  the  market  was  "full,"  as  it  is  known,  by  this  vessel. 
The  broker  who  had  bought  up  the  market  would  then  approach 
the  shipper  offering  to  transfer  insurance  to  him  at  a  rate  greatly 
in  advance  of  the  original  rate  charged  by  the  underwriter. 
Such  practices  were  obviously  unfair  and  could  have  been 
prevented  in  large  measure  had  underwriters  insisted  on  having 
insurance  placed  only  in  the  names  of  legitimate  shippers  who 
had  definite  freight  engagements  for  the  vessel  named.  The 
law  of  New  York  has  since  been  amended  making  it  unlawful 
to  issue  insurance  to  anyone  who  does  not  have  a  valid  insurable 
interest  and  also  making  it  unlawful  for  anyone  who  does  not 
have  a  vahd  insurable  interest  to  apply  for  insurance.  It  also 
becomes  unlawful  to  transfer  insurance  at  a  rate  higher  than  its 
original  cost  unless  the  buyer  is  informed  of  the  original  rate  and 
consents  to  pay  the  higher  charge.  While  this  law  has  done 
much  to  correct  the  improper  practices  which  have  crept  into  the 
marine  insurance  business  in  New  York  it  does  not  correct  similar 
abuses  which  may  be  practised  in  other  states.  Underwriters 
by  issuing  policies  to  only  those  whom  they  know  to  be  legitimate 
shippers  or  authorized  brokers  can  most  effectually  stamp  out 
these  improper  practices.  In  Great  Britain  underwriters  have 
been  imposed  upon  in  the  same  way  and  now  insist  that  the  names 
of  the  real  parties  in  interest  be  declared  when  insm'ances  are 
made  binding.  The  wording  of  the  Lloyd's  policy  (see  appendix, 
p.  411)  is  so  indefinite  and  comprehensive  with  respect  to  the 
persons  insured  that  underwriters  have  readily  been  imposed 
upon  by  those  who  sought  unlawfully  to  "corner  the  insurance 
market." 

Whom  It  May  Concern. — Before  passing  from  the  subject  of 
the  assured,  reference  must  be  made  to  an  expression  common 
to  most  marine  policies  which  leads  to  some  confusion  in  deter- 
mining the  actual  parties  at  interest.  This  expression  "for  ac- 
count of  whom  it  may  concern  "  is  somewhat  pecuUar  to  American 


THE  POLICY.     ASSURER  AND  ASSURED  1  V.) 

policies  but  similar  expressions  are  found  in  English  and  Conti- 
nental insurance  contracts.  The  original  purpose  of  these  ex- 
pressions is  doubtful,  but  as  Emerigon,  the  French  author, 
suggests  they  may  have  been  introduced  in  order  to  conceal  the 
identity  of  the  real  party  at  interest  and  to  keep  his  commercial 
enterprises  secret.  However,  their  use  caused  English  under- 
writers in  the  eighteenth  century  to  complain  ''that  policies 
were  so  loose  that  an  underwriter  had  no  opportunity  of  knowing 
who  the  persons  were  for  whom  he  insured."  A  statute  accord- 
ingly was  passed  setting  forth  how  the  assured  should  be  de- 
scribed in  the  policy,  and  an  underwriter  promptly  took  advan- 
tage of  the  law  in  declining  payment  under  a  policy  issued  in  the 
name  of  an  agent  who  was  not  described  as  such.  Other  similar 
cases  occurred  and  a  new  statute  was  enacted  virtually  repealing 
the  former.  The  use  of  these  expressions  is  now  firmly  estab- 
lished and  their  meaning  is  well  understood. 

"Whom  It  may  Concern"  is  not  All  Inclusive. — The  expression 
"for  account  of  whom  it  may  concern"  has  not  the  all-inclusive 
meaning  the  words  would  indicate.  Phillips  states  that  a  policy 
written  with  these  words  or  "any  equivalent  clause,  will  be 
applied  to  the  interest  of  the  party  or  parties,,  and  only  the  party 
or  parties,  for  whom  it  is  intended  by  the  person  who  effects  or 
orders  it,  if  such  party  has  authorized  its  being  made  beforehand, 
or  subsequently  adopts  it."^  The  use  of  this  expression,  which  is 
a  technical  one,  presupposes  an  agency,  and  refers  to  only  the 
person  or  persons  whom  the  agent  had  in  contemplation  when  he 
effected  the  insurance.  Such  person  or  persons  are  the  "con- 
cerned" in  the  transaction,  and  not  all  persons  who  might 
possibly  have  an  interest  in  the  subject  matter  of  the  insurance. 
It  is  not  essential  that  these  parties  be  definitely  known  to  the 
assured,  but  they  must  be  embraced  within  a  certain  class  of  per- 
sons for  whose  account  the  assured  intended  to  effect  insurance. 

"Trading  with  the  Enemy." — The  entrance  of  this  country  into 
the  World  War  and  the  passing  of  the  "  Trading  with  the  Enemy  " 
act  presented  a  new  problem  with  respect  to  this  expression.  It 
might  happen  that  some  of  the  persons  intended  to  be  included 
by  the  assured  under  the  general  words  "whom  it  may  concern" 
were  ahen  enemies  of  the  government,  or  persons  who  were  in- 

^  Phillips  on  "The  Law  of  Insurance,"  Section  383. 


ILM)  MARINE  INSURANCE 

cluilcd  witliiii  the  terms  of  tlic  Act  ami  wlio  were,  or  .should 
have  been  placed  on  the  proscribed  list  by  the  United  States 
Uovcrninont.  It  is  doubtful  whether  or  not  the  government 
woukl  hold  an  insurance  company  responsible  for  innocently 
granting  insurance  under  the  cover  of  "whom  it  may  concern" 
to  persons  coming  within  the  terms  of  such  an  act.  Under- 
writers during  the  late  war  in  order  to  preclude  such  a  possibility, 
and  to  affirmatively  show  that  it  was  their  intention  to  observe 
the  letter  as  well  as  the  spirit  of  tiic  law  inserted  in  their  policies 
clauses  which  had  the  effect  of  excluding  from  the  protection  of 
the  policy  any  person  or  persons  who  might  come  within  the 
meaning  of  the  Act.  One  form  of  this  clause,  which  it  will  be 
observed  also  included  the  restrictive  trading  acts  of  Great 
Britain,  read: 

"  Warranted  not  to  cover  the  interest  of  any  partnership,  corpora- 
tion, association  or  person,  insurance  for  whose  account  would  be 
contrary  to  the  Trading  with  the  Enemy  acts  or  other  statutes  or 
prohibitions  of  the  United  States  and/or  British  Governments." 

The  Payee  of  Loss. — In  the  policy  form  under  consideration 
the  wording  continues:  "In  case  of  loss,  to  be  paid  in  funds 
current  in  the  United  States,  or  in  the  city  of  New  York  to 

. "     Ordinarily  a  policy  is  made  payable  to 

the  assured  or  order,  but  loss  may  be  made  payable  to  any  in- 
terested third  party  or  parties.  On  shipments  which  are  financed 
under  letters  of  credit  it  is  customary  to  have  the  loss  made 
payable  to  the  issuing  bank  in  order  that  its  advances  on  the 
shipment  may  be  protected.  In  the  case  of  hull  insurance 
where  there  is  a  mortgage  the  loss  is  usually  made  payable  to 
the  mortgagee  and  the  assured  "as  their  respective  interests 
may  appear."  The  expression  "as  their  interests  may  appear," 
while  in  general  use,  is  technically^  objectionable  in  that  it  may 
put  on  the  underwriter  the  burden  of  deciding  what  the  respective 
interests  of  the  parties  are.  However,  in  case  of  a  dispute  it 
would  be  possible  for  the  underwriter  to  pay  into  court  the 
amount  of  the  loss,  and  permit  the  claimants  to  settle  their 
differences  there.  It  must  of  course  be  remembered  that  in  order 
to  establish  a  valid  claim  for  loss  certain  documentarj--  evidence 
must  be  presented  showing  that  such  loss  has  actually  occurred 


THE  POLICY.     ASSURER  AND  ASSURED  121 

and  that  the  claimant  is  entitled  to  payment  of  the  amount  due 
under  the  policy.  These  proofs  of  loss  will  be  considered  in  a 
later  chapter. 

The  Insurance  Certificate  Transfers  the  Payment  of  Loss. — 
In  the  last  twenty-five  years  the  insurance  certificate  has  largely 
supplanted  the  policy  in  connection  with  the  negotiation  of 
documents  relating  to  cargo  shipments.  The  use  of  this  cer- 
tificate has  already  been  explained,  but  its  consideration  at  this 
point  is  pertinent,  since  its  purpose  is  primarily  to  transfer 
to  the  holder  the  benefit  of  the  insurance  which,  in  the  event  of 
loss,  is  the  right  to  claim  the  indemnity  which  the  insurance 
provides.  As  most  merchants  have  open  policies  covering  all 
shipments  which  are  at  their  risk,  the  insurance  certificate 
provides  a  simple  and  convenient  method  of  evidencing  the 
insurance  and  of  making  possible  the  payment  of  loss  to  the 
bona-fide  holder  of  the  commercial  documents.  These  cer- 
tificates, when  negotiable,  provide  that  loss  shall  be  payable  to  a 
designated  person  or  order,  these  last  two  words  enabling  the 
payee  by  simply  signing  his  name  across  the  back  of  the  certificate 
to  transfer  the  payment  of  loss.  This  he  may  do  in  one  of  two 
ways,  either  he  may  specially  transfer  the  certificate  by  endorsing 

it  "Pay  to  the  order  of "  inserting  some  definite 

name,  or  the  payee  may  by  merely  signing  his  name  make  the 
instrument  a  so-called  "bearer"  document.  In  the  first  case 
loss  will  be  payable  only  to  the  person  indicated  or  one  to  whom 
he  may  order  the  loss  payable,  in  the  second  case  any  person 
producing  the  certificate  with  the  supporting  documentary 
evidence  of  ownership  and  loss  would  be  entitled  to  payment. 
By  the  omission  of  the  words  "or  order"  or  "to  the  order  of" 
the  endorser  can  destroy  the  negotiability  of  the  document,  it 
being  transferable  from  that  time  on,  only  by  assignment. 

Loss  may  be  Made  Payable  in  Foreign  Countries. — The 
custom  of  providing  that  loss  may  be  payable  in  foreign  coun- 
tries, while  essential  in  the  conduct  of  commerce,  is  not  a  new 
departure  as  this  method  was  in  vogue  at  least  as  early  as  the 
sixteenth  century.  Underwriters  carry  funds  in  the  larger 
banking  centers  and  have  arrangements  in  smaller  cities  by  which 
drafts  drawn  on  them  are  honored  by  some  local  l)ank.  This 
enables  the  holders  of  certificates  after  proper  adjustment  has 


122  marixp:  insurance 

IxTii  iiKido  by  the  local  representative  of  llu;  uiulerwritcrs  to 
receive  prompt  i)ayiucnt  and  thus  to  be  i)ut  in  funds  to  continue 
their  commercial  transactions.  Were  it  necessary  in  each  case 
to  return  the  certificate  and  other  loss  papers  to  the  underwriter 
for  payment,  often  months  would  elai)se  l)efore  the  holder  of  the 
certificate  could,  in  the  ordinary  course  of  the  mail,  receive 
reimbursement  for  his  loss. 

Loss  Orders. — After  a  loss  has  been  adjusted  and  the  under- 
writer has  admitted  liability,  the  payee  specified  in  the  policy 
or  the  payee  under  the  certificate  if  one  has  been  issued,  may  by  a 
written  order  in  proper  form  instruct  the  underwriter  to  pay  the 
loss  to  some  thii'd  party.  Such  orders  are  principally  used  in 
connection  with  poUcies  in  which  the  loss  is  payable  to  a  bank  to 
protect  its  advances  on  the  shipment,  and  these  advances  having 
been  paid  by  the  assured,  the  bank  is  out  of  the  transaction  and 
quite  willing  that  the  loss  should  be  paid  to  the  assured.  To 
accomplish  this  end  a  formal  order  of  payment  is  executed  by  the 
bank. 

Open  or  Floating  Policies. — It  may  be  well  at  this  point  to 
give  consideration  to  the  subject  of  open  or  floating  policies. 
The  word  open  in  connection  with  marine  insurance  contracts 
has  a  double  meaning.  Sometimes  it  is  used  to  describe  the 
insurance  on  a  specific  risk  where  the  exact  amount  needed  has 
not  been  determined  and  the  transaction  is,  therefore,  an  open 
or  uncompleted  agreement.  A  broader  meaning,  which,  however, 
is  merely  an  enlargement  of  the  primary  definition,  is  given  to  the 
term  when  used  in  connection  with  float  ing  policies.  These  policies 
are  contracts  which  may  be  issued  for  a  definite  or  indefinite 
period  of  time,  there  being  no  restriction  in  New  York  as  to  the 
duration  of  a  marine  policy  and  cover  the  assured  with  respect 
to  all  his  shipments  as  described  in  the  policy  within  the  named 
geographical  limits.  Amounts  applicable  to  the  contract  are 
to  be  reported  from  time  to  time  as  information  of  shipments 
is  received,  and  therefore  are  open.  Such  poUcies  usually  have  a 
limit  of  liability  on  any  one  risk,  bift  the  actual  amounts  on  which 
premium  is  to  be  paid  wliile  undetermined,  are  definitely  con- 
trolled by  the  Umit  of  hability  and  by  the  valuation  clause  to 
which  reference  will  be  made  later.  Tlie  open  or  floating  policies, 
covering  as  they  do  all  goods  as  described  which  may  be  afloat, 


TllK  I'OLICY.     ASSURER  AND  ASSURED  123 

make  possible  the  great  commercial  transactions  of  the  present 
day.  Were  it  necessary  to  specially  insure  in  advance  each 
individual  shipment,  commerce  on  its  present  gigantic  scale 
would  be  impossible  since  in  many  cases  goods  are  shipped 
and  may  even  have  arrived  before  the  assured  has  knowl- 
edge that  property  at  his  risk  has  been  exposed  to  the  perils  of 
transportation. 

Blanket  Policies. — However,  the  distinction  cannot  be  too 
closely  drawn  between  policies  of  this  character  and  the  so-called 
blanket  policies  which  are  similar  in  their  nature,  but  entirely 
different  in  their  mode  of  operation.  The  purpose  of  the  blanket 
policy  is  similar  to  that  of  the  floating  policy  but  is  a  closed 
instead  of  an  open  contract.  The  blanket  policy  describes  the 
geographical  and  time  Umits  of  the  contract,  the  payee  of  loss  and 
the  kind  of  goods  to  be  insured  and  always  has  a  fixed  limit  of 
liability  on  any  one  vessel  or  in  any  one  location  at  one  time. 
The  principal  distinction,  between  the  floating  policy  and  the 
blanket  policy  is  that  in  the  former  type  of  contract  the  assiu^ed 
pays  the  premium  on  the  actual  amounts  at  risk,  while  under  the 
latter  form  a  lump  sum  premium  is  charged.  This  premium  is 
based  on  the  estimated  total  amount  which  will  come  under  the 
protection  of  the  pohcy  during  the  contract  term,  and  may  be 
subject  to  readjustment  at  the  end  of  the  term,  by  the  payment 
of  an  additional  premium  at  a  fixed  rate  if  the  books  of  the  as- 
sured indicate  that  an  amount  greater  than  that  estimated  came 
under  the  protection  of  the  policy.  By  the  same  terms  of  agree- 
ment a  return  premium  may  be  made  at  a  fixed  rate  if  the  actual 
amount  at  risk  fell  below  the  estimated  amount.  Usually  these 
policies  contain  a  provision  that  if  loss  is  paid  the  policy  must  be 
reinstated  for  the  amount  of  the  loss,  by  the  payment  pro-rata 
of  the  annual  premium  on  the  amount  so  paid  for  the  unexpired 
period  of  the  policy.  This  reinstatement  clause  may  make  such 
policies  very  costly  if  an  assured  unfortunately  has  a  series  of 
losses. 

Advantages  of  Blanket  Policies. — From  his  point  of  view  a 
blanket  policy  properly  worded  has  the  advantage  of  securing 
to  the  underwriter  the  premium  for  the  risks  which  he  assumes. 
Too  often,  in  the  case  of  floating  policies  the  assured  forgets  to 
report  shipments  applicable  to  the  policy,  or  has  the  mistaken 


12  t  MAIfLXK  INSURANCE 

notion  that  it  is  only  necessary  to  report  shipments  on  which  loss 
has  actually  occurred,  forgetting  that  the  underwriter  Is  entitled 
to  premium  on  every  dollar  which  has  been  at  risk  under  the 
pohcy.  Under  the  blanket  form  the  assured  avoids  the  necessity 
of  making  these  detailed  reports  of  shipments  applicable  to  the 
policy. 

Transit  Floaters. — Blanket  pohcies  under  the  name  of  "transit 
floaters"  are  in  common  use  to  cover  local  shipments  made  by 
merchants  where  it  would  be  impracticable  to  make  specific 
reports  of  the  individual  items.  These  policies  are  also  fre- 
quently used  by  "  common  carriers"  to  protect  shipments  moving 
over  their  lines.  Pohcies  in  which  the  interest  insured  is  the 
liability  of  a  common  carrier  for  loss  suffered  to  property  in 
his  custody  are  sometimes  issued.  The  subject  of  insurance 
is  not  the  property  itself  but  the  liability  of  the  carrier  whether 
this  be  implied  by  law  or  assumed  by  contract.  Such  a  policy 
is  unvalued,  the  responsibihty  of  the  underwriter  being  limited 
only  by  the  amount  expressed  in  the  policy  and  not  by  the  value 
of  the  property  to  which  the  liability  relates.  The  great  bulk 
of  cargo  insurance,  especially  in  the  overseas  trade,  is  written 
in  the  form  of  the  open  or  floating  policies  or  as  they  are  called 
in  Great  Britain,  "permanent  covers."  It  is  worthy  of  note  that 
the  Marine  Insurance  Act  of  Great  Britain  Umits  the  term  for 
which  a  policy  ma3'  be  written  to  one  year,  and  that  owing  to 
the  "Stamp  Act"  these  "permanent  covers"  are  merely  agree- 
ments on  the  part  of  the  underwriters  to  cover  the  shipments 
described  and  to  issue  properly  stamped  evidence  of  the  individ- 
ual insurances  when  declarations  of  amounts  are  made. 


CHAPTER  7 
THE  POLICY  {Continued.)     THE  TERMINI 

Lost  or  Not  Lost. — After  laying  such  great  stress  on  the  fact 
that  to  have  a  vaHd  insurance  there  must  be  an  insurable  interest, 
that  is  a  subject  matter  to  which  the  assured  bears  such  a  rela- 
tion that  he  will  be  benefited  by  its  continued  eyistence  or  injured 
by   its    damage   or   destruction,    it   is  somewhat  disconcerting 

to  find  the  following  words  in  the  policy  form.      'Do make 

insurance,   and   cause ■ — ' — • to  be  insured,  lost  or 

not  lost."  If  the  subject  matter  is  lost  there  would  seem  to  be 
no  insurable  interest,  but  it  must  be  remembered  that  the 
assured  and  his  underwriters  can  incorporate  into  the  policy  any 
conditions  which  are  legal.  Were  the  subject  matter  known  to 
either  party  to  have  been  lost,  a  policy  issued  with  respect  to  it 
would  then  be  void.  There  must,  therefore,  be  read  into  this 
phrase  the  words  "without  the  knowledge  of  either  party." 

"Lost  or  Not  Lost"  a  Necessary  Condition. — The  words  "lost 
or  not  lost"  were  first  introduced  into  the  policy  in  1613  but 
their  use  has  become  so  general  that  they  are  now  found  in 
practically  all  forms.  The  reason  for  the  use  of  this  clause  is 
obvious.  A  merchant  ordering  goods  from  a  distant  place  may 
experience  delay  in  obtaining  information  as  to  the  shipment. 
When  advices  are  received  the  vessel  may  have  sailed  and  in 
fact  may  have  been  lost.  Were  the  merchant  to  insure  the  goods 
under  a  policy  not  containing  these  words,  and  the  underwriter 
could  establish  that  at  the  time  the  policy  was  issued  the  goods 
were  damaged  or  had  ceased  to  exist,  payment  of  loss  could  be 
resisted  on  the  ground  that  there  was  no  insurable  interest  to 
the  extent  of  the  damage  or  loss.  Such  a  situation  would  be 
intolerable  in  mercantile  transactions,  and  over  three  hundred 
years  ago,  when  the  means  of  communication  between  countries 
were  very  crude,  this  provision  was  first  incorporated  in  the 
policy  form.  Of  course,  these  words  can  be  construed  only  in  the 
10  125 


126  MAiaXK  INSUliANCE 

li^ht  (»f  that  uii(lcii\  iii^^  principle  of  all  luarinc  insurance  namely 
that  the  utmost  good  faith  must  exist  between  the  assured  and 
the  underwriter.  If  the  assured  knows  that  disaster  has  over- 
taken the  vessel  or  its  cargo,  the  concealment  of  this  knowledge 
would  amount  to  fraud  and  the  insurance  would  be  void.  In  the 
absence  of  such  knowledge,  this  clause  permits  the  valid  insurance 
of  goods  or  vessel  which  at  the  time  of  insurance  may  be  lost 
or  damaged.  It  sometimes  happens  that  the  merchant  or  his 
imderwriter  may  have  heard  rumors  that  disaster  has  overtaken 
the  venture,  but  by  mutual  consent  the  assured  warrants  that 
the  property  was  in  good  safety  on  a  given  date  and  in  the  event 
of  loss  the  assured  can  recover  if  it  can  be  established  that  at 
any  time  on  that  particular  day  the  venture  was  in  existence 
and  undamaged.  On  the  other  hand  it  may  be  known  that  dis- 
aster has  overtaken  the  venture,  but  the  extent  of  the  damage 
or  loss  is  unknown.  The  assured,  however,  wishes  the  remnant 
of  his  property  then  existing  to  be  insured,  and  the  underwriter 
who  is  willing  to  assume  such  a  risk  will  insert  a  warranty  of  the 
following  tenor,  i.e.,  "Warranted  free  from  loss,  damage,  injury 

or  expense  arising  out  of  casualty  of "  inserting  in  the  blank 

space  the  date  of  the  disaster.  This  makes  the  underwriter 
liable  for  damage  caused  by  a  new  casualty,  but  not  for  that 
resulting  directly  or  indirectly  from  the  original  disaster. 

The  Termini. — The  words  "at  and  from"  follow  "lost  or  not 
lost"  in  the  form,  and  a  blank  space  is  provided  in  which  is  inserted 
the  geographical  or  time  limits  of  the  policy.  These  limits  are 
known  as  the  termini  of  the  insurance,  the  terminus  a  quo  being 
the  place  or  time  of  the  inception  of  the  risk,  the  terminus  ad  quern 
the  place  or  time  of  the  termination  of  the  risk.  No  insurance 
policy  is  valid  unless  these  termini  are  mentioned.  The  terminus 
a  quA)  must  be  specifically  indicated,  the  terminus  ad  quern  may 
be  subject  to  determination  as  in  the  case  of  a  floating  policy 
wherein  the  time  of  the  termination  of  the  contract  is  not  stated, 
because  the  pohcy,  though  being  continuous,  may  be  terminated 
by  either  party's  giving  notice  of  cancellation  as  pro\'ided  in  the 
contract.  In  the  case  of  floating  pohcies,  however,  the  geograph- 
ical termini  are  definitely  described.  In  these  poUcies  and  usually 
in  the  case  of  hull  insurances  on  time,  both  geographical  and  time 
limits  appear  in  the  terms  of  agreement. 


THE  POLICY.     THE  TERMINI  127 

The  Subject  Matter  of  Insurance. — The  policy  continues 
"upon  all  kinds  of  lawful  goods  and  merchandises."  The  su])ject 
matter  of  the  insurance  must  be  distinctly  set  forth.  If  the 
policy  is  on  a  specific  lot  of  goods  the  property  should  be  de- 
scribed by  marks  and  numbers  if  possible — the  number  of 
packages  and  kind  of  goods  at  least  should  be  noted.  In  floating 
policies  general  words  are  used  such  as  goods,  cargo,  merchandise, 
but  in  the  declarations  of  shipments  under  the  policy  a  definite 
description  of  the  kind  and  quantity  of  goods  is  given.  In 
cases  where  certificates  of  insurance  are  issued  it  is  very  im- 
portant that  the  description  of  the  goods  be  exact,  so  that  the 
property  covered  by  the  certificate  will  fit  the  description  of 
the  goods  for  which  the  corresponding  bill  of  lading  is  issued. 
If  the  policy  covers  only  a  part  interest  in  the  insured  subject 
such  fact  should  be  noted  at  this  point  in  the  policy,  as  for 
instance  on  one-half  interest  in  100  Bales  Cotton  marked  "Kite." 
While  the  printed  words  in  the  policy  are  general  in  their 
meaning  and  would  cover  any  goods,  it  is  customaiy  to  insert 
in  the  blank  space  preceding  these  words  the  definite  de- 
scription of  the  property.  The  word  ''lawful"  found  in  the 
printed  form  is  inserted  merely  to  protect  the  underwriter 
from  the  inclusion,  under  general  words,  of  property  not  law- 
ful to  be  traded  in  and  does  not  necessarily  refer  to  contraband 
of  war. 

Goods  Presumed  to  be  Laden  under  Deck. — It  is  a  well  under- 
stood and  well  established  rule  of  marine  insurance  that  goods 
are  presumed  to  be  shipped  under  deck,  that  is  below  the  weather 
deck  of  the  vessel.  If  the  goods  are  shipped  on  deck  they  are 
not  covered  by  the  policy  unless  special  notice  of  the  stowage  is 
given  to  the  underwriter  and  he  accepts  the  enhanced  risk. 
The  reason  for  this  presumption  is  apparent.  The  deck  of 
a  vessel  is  not  designed  to  carry  goods.  Its  primary  function 
is  to  make  the  holds  watertight  and  to  protect  the  cargo  laden 
in  the  holds.  Goods  carried  on  deck  are  subject  to  weather 
damage,  sea  damage  and  to  the  hazard  of  being  washed  overboard. 
Shipowners  have  no  legal  right  to  load  goods  on  deck  and  if  they  do 
so,  such  goods  are  at  the  shipowner's  risk  unless  he  has  obtained 
the  consent  of  the  cargo  owner  to  such  stowage.  Accordingly 
underwriters  cannot  be  expected  without  special  notice  to  assume 


128  MARINE  INSURANCE 

llie  risk  of  goods  laden  on  deck  and  will  be  released  from  their 
contract  if  the  insured  subject  is  so  loaded.  There  are  certain 
cases,  however,  which  may  furnish  an  exception  to  this  rule. 
( 'ertain  kinds  of  goods,  dangerous  in  themselves,  are  by  custom 
and  soiuetiines  by  law,  recjuired  to  ])e  shipped  on  deck,  so  that 
they  will  not  endanger  the  other  cargo  and  can,  if  necessity 
arises,  be  quickly  thrown  overboard.  Underwriters  are  pre- 
sumed to  know  of  these  customs  and  legal  requirements.  If, 
therefore,  an  underwriter  accepts  a  risk  on  one  of  these  special 
commodities  and  the  assured  does  not  specify  that  the  property 
was  shipi^ed  on  deck,  the  underwriter  might  be  precluded  from 
urging  that  the  insuranc(^  was  invalid  because  the  property  was 
laden  on  deck.  Either  the  custom  of  carrying  such  goods  on 
deck  or  a  legal  requirement  necessitating  such  stowage  would 
have  to  be  clearly  shown,  in  order  to  create  such  a  presumption  of 
knowledge  on  the  part  of  the  underwriter.  Some  insurance 
companies  in  order  to  avoid  such  possi])le  questions,  specifically 
state  in  the  printed  form  that  the  poUcy  does  not  cover  goods 
carried  on  deck,  but  if  specially  insured  on  deck  are  subject 
to  special  conditions  relieving  the  underwriter  from  inevitable 
losses  resulting  from  such  stowage. 

Some  Kinds  of  Property  Should  be  Specifically  Mentioned. — 
There  are  other  kinds  of  property  which  are  not  included  in  the 
general  words  goods  and  merchandises,  and  among  these  may  be 
mentioned  livestock  and  goods  shipped  in  refrigerators.  Live- 
stock such  as  horses  and  cattle  must  be  specially  declared  to  an 
underwriter,  since  the  special  hazards  to  which  such  property  is 
subject  could  not  be  presumed  to  be  in  the  contemplation  of  an 
underwriter  when  he  accepted  insurance  on  goods  and  merchan- 
dise. The  same  remarks  will  apply  to  shipments  of  refrigerated 
and  frozen  goods  such  as  meats,  poultry,  fish  and  game.  When 
mai'ine  insurance  was  first  devised  and  when  the  printed  form 
of  policy  was  first  adopted,  the  modern  method  of  preserving 
perishable  articles  by  refrigeration  was  unknown.  Question 
has  also  been  raised  as  to  whether  or  not  specie,  bullion  and 
securities  and  like  articles  come  within  the  scope  of  the  general 
words.  The  surest  rule  to  follow  is  to  specifically  describe 
the  jiroperty  to  be  insured  so  that  no  doubt  of  the  intention  of 
the   parties  may  exist.     If   the   insurance  is  on   hull,   profits, 


THE  POLICY.     THE  TERMINI  129 

commissions,  or  freight  the  interest  to  be  insured  and  the  subject 
matter  to  which  it  refers  should  be  adequately  described. 

The  Vessel  and  Its  Master. — The  printed  form  of  pohcy 
continues: 

"laden  or   to  be  laden  on  board   the  good   called  the 

whereof  is  master  for  the  present  voyage or 

whoever  else  shall  go  for  master  in  the  said  vessel,  or  by  whatever  other 
name  or  names  the  said  vessel,  or  the  master  thereof,  is  or  shall  be 
named  or  called." 

These  are  quaint  words  referring  to  matters  which  are  of  vital 
importance  to  the  risk,  but  some  of  the  blank  spaces  are  rarely 
filled  in  when  the  policy  is  issued.  The  name  of  the  carrying 
vessel  is  of  course  mentioned,  but  while  it  has  been  pointed  out 
that  much  depends  on  the  experience  and  skill  of  the  master  it 
seldom  happens  that  his  name  appears  in  the  space  provided. 
The  words  "laden  or  to  be  laden"  do  not  refer  to  the  attachment 
of  the  risk  but  are  descriptive  of  "  lawful  goods  and  merchandises  " 
which  are  "laden  or  to  be  laden  on  the  good  ship  Atlas"  for  in- 
stance. The  word  good  is  not  a  warranty  that  the  vessel  is 
seaworthy,  but  is  merely  a  descriptive  adjective.  There  is,  how- 
ever, an  implied  warranty  of  seaworthiness  to  which  reference 
will  be  made  (see  p.  174).  The  name  of  the  vessel  is  of  the 
utmost  importance  because  this  is  really  the  crux  of  the  whole 
insurance.  The  underwriter's  willingness  or  unwillingness  to 
write  the  risk  is  dependent  in  large  part  on  the  suitability  of  the 
proposed  vessel  for  the  voyage  to  be  run  and  no  other  vessel  can 
be  substituted  without  the  consent  of  the  underwriter.  The 
name  of  the  vessel  may  be  changed,  the  master  may  be  changed, 
but  the  vessel  itself  cannot  be  changed  without  voiding  the 
insurance.  It  will  be  noticed  that  it  is  not  sufficient  to  give 
merely  the  name  of  the  vessel,  a  description  of  her  type  must  be 
given  such  as  ship,  steamer,  motor  vessel,  auxiliary  sailing 
vessel,  etc.,  so  that  the  underwriter  may  be  able  to  identify  the 
particular  vessel  intended. 

The  Attachment  of  the  Risk. — The  name  of  the  assured,  the 
payee  of  loss,  the  description  of  the  voyage  and  the  name  of  the 
vessel  having  been  set  forth,  the  next  paragraph  of  the  form  tells 
when  the  risk  attaches  and  how  long  it  endures.     It  also  intro- 


l;^()  MA  RISE  INSURANCE 

iliU'cs  some  line  i)oiiits  of  interpretation.  The  first  sentence  of 
this  paragraph  reads: 

"Beginning  the  adventure  upon  tlie  said  goods  and  merchandises,  from 
and  immediately  following  the  loading  thereof  on  board  of  the  said  vessel, 

at as  aforesaid,  and  so  shall  continue  and  endure  until  the 

said  goods  and  merchandises  shall  be  safely  landed  at as 

aforesaid." 

It  should  be  remembered  that  a  policy  of  marine  insurance  is 
a  transit  policy  and  it  should  cover  goods  only  while  in  course  of 
transportation  and  while  out  of  the  custody  of  the  owner.  It 
must  also  be  noted  that,  notwithstanding  the  provision  given 
above  for  the  attachment  of  the  risk,  the  policy  will  be  of  no  effect 
until  the  assured  has  an  insurable  interest,  and  while  it  cannot, 
under  the  wording  given,  attach  until  the  actual  loading  on  board 
the  said  vessel,  it  will  not  attach  then  unless  the  insurable  interest 
exists. 

Date  of  Attachment. — The  wording  of  this  form  of  course 
refers  to  cargo  insurances  insured  on  special  voyages.  Hull 
policies  which  are  in  many  cases  written  on  time  as  it  is  known, 
attach  from  the  day  and  hour  named  in  the  policy,  but  if  no  hour 
is  named  the  policy  will  attach  from  midnight  of  the  day  before. 
It  is  customary  for  an  hour  to  be  named  and  to  make  certain  what 
hour  is  intended  the  standard  time  of  some  named  i)lace  is  used 
as  "noon  Washington  Time."  Floating  policies  on  cargo  are 
written  to  attach  from  a  named  date.  The  policy,  as  a  contract 
"covers  all  shipments  as  herein  described  made  on  and  after" 
the  date  indicated,  but  the  insurance  on  each  individual  shipment 
made  under  the  policy,  will  attach  only  in  accordance  with  the 
printed  form  that  is,  "immediately  following  the  loading  on 
board"  the  specific  vessel,  unless  the  policy  has  been  so  worded 
as  to  provide  an  earlier  point  of  attachment,  as  under  the  ware- 
house to  warehouse  form  to  which  reference  will  be  made. 

The  Time  of  Attachment. — The  words  "from  and  imme- 
diately following"  give  the  barest  form  of  protection  and  as 
the  words  imply  will  provide  insurance  only  from  the  actual 
loading  of  the  goods.  AMiat  constitutes  actual  loading  has  been 
a  matter  of  some  controversy,  but  it  seems  to  be  a  well-settled 
principle  that  from  the  moment  the  slings  of  the  vessel  lift  the 


THE  POLICY.     THE  TERMINI  131 

goods  clear  of  the  wharf  or  other  place  of  deposit,  the  risk  at- 
taches. If  on  the  other  hand  the  goods  are  lifted  on  to  the  vessel 
by  the  slings  of  a  deUvering  lighter  or  by  a  derrick  on  the  wharf 
it  would  seem  to  be  equally  clear  that  there  is  no  loading  until 
the  slings  have  released  the  goods  on  the  deck  or  in  the  hold  of 
the  vessel.  In  case  the  terminus  a  quo  is  a  port  or  place  where  it 
is  customary  or  in  fact  necessary  that  goods  be  lightered  from 
the  shore  to  the  vessel,  as  is  the  case  at  some  ports  or  roadsteads 
along  the  West  Coast  of  South  America,  doubt  may  arise 
as  to  what  the  word  "laden  on  board"  means.  It  has  been  held 
in  certain  instances  that  "laden  on  board"  means  laden  on  board 
the  vessel  carrying  the  goods  from  the  shore  where  the  loading 
conditions  have  required  this  mode  of  transit.  Such  decisions 
would  seem,  however,  to  read  into  a  policy  a  risk  which  may  not 
have  been  contemplated  or  desired  by  the  underwriter.  If  such 
lighterage  risk  is  to  be  included,  provision  therefor  should  be 
made,  as  is  done  in  the  ordinary  form  of  craft  clause,  reading: 

"Including  risk  of  craft,  raft,  and/or  lighter  to  and  from  the  vessel. 
Each  craft,  raft,  and/or  lighter  to  be  deemed  a  separate  insurance. 
The  assured  are  not  to  be  prejudiced  by  any  agreement  exempting 
Ughtermen  from  liability." 

In  England  this  question  is  settled,  as  in  the  rules  of  construc- 
tion accompanying  the  Marine  Insurance  Act,  it  is  held  that 
where  goods  are  insured  "from  the  loading  thereof"  the  risk 
does  not  attach  until  such  goods  are  actually  on  board,  and  that 
the  insurer  is  not  liable  for  them  while  in  transit  from  the  shore 
to  the  ship. 
Insured  Until  Safely  Landed. — As  the  insurance  continues  until 

the  goods  shall  be  safely  landed  at ■ the  terminus 

ad  quem,  the  same  question  arises  to  determine  whether  or  not 
delivery  into  a  hghter  or  other  shore  vessel  constitutes  a  safe 
landing.  The  answer  to  this  question  depends  on  the  hydro- 
graphic  character  and  the  custom  of  the  port  and  a  safe  landing 
will  not  have  been  accomplished  until  the  goods  have  been  landed 
in  the  customary  manner  and  within  a  reasonable  time  after 
arrival  at  the  port.  This  of  course,  means  that  if  the  only  method 
of  landing  merchandise  is  by  Ughters  or  surf  boats,  the  risk  will 


132  MARINE  INSURANCE 

continue  in  such  craft  until  the  property  is  deposited  in  a  safe 
pla(!C  on  shore.  If  dis(;harge  were  made  into  a  fioating  receiving 
hulk,  and  this  were  the  customary  i)lace  of  discharge  a  safe 
delivery  would  have  been  made.  The  facts  in  each  particular 
case  wilJ  control,  though  borderline  cases  will  arise  where  it 
will  be  difficult  to  determine  when  the  risk  under  the  policy 
ceases. 

Warehouse  to  Warehouse  Clause. — Obviously,  the  protection 
afforded  by  the  printed  form  of  policy  is  the  minimum.  That 
it  leaves  many  risks  uninsured  is  apparent  and  it  is,  therefore, 
not  strange  that  various  clauses  have  been  devised  to  enlarge 
its  scope.  One  of  the  broadest  and  perhaps  the  most  usual 
form  of  protection  afforded  in  the  case  of  cargo  insurance  is  that 
of  the  so-called  "warehouse  to  warehouse"  clause.  This  clause 
does  not  by  any  means  represent  the  extreme  limit  to  which 
underwriters  go  in  the  insurance  of  cargo,  since  policies  are 
written  covering  raw  materials  right  from  the  farm  or  from  the 
mine  or  forest.  Insurance  policies  have  in  some  cases  been  so 
broadened  that  they  covered  agricultural  products  while  growing 
in  the  field  and  wool  while  it  was  still  on  the  back  of  the  sheep. 
Such  pohcies  go  far  beyond  the  bounds  of  transit  insurance,  the 
"warehouse  to  warehouse"  clause  representing  practically  the 
utmost  Hmits  to  which  transportation  insurance  should  be 
extended. 

At  and  From. — Between  the  restricted  protection  afforded  by 
the  printed  form,  and  the  broad  coverage  granted  in  the  ware- 
house to  warehouse  clause,  many  intermediate  forms  of  insurance 
are  found.  The  policy  reads  "at  and  from"  but  these  words 
merely  indicate  that  the  insurance  attaches  when  the  goods  are 
loaded  on  the  vessel  at  the  port  and  continues  there  until  the 
vessel  sails  when  the  word  "  from  "  becomes  effective.  The  words 
"at  and  from"  can  only  be  construed  in  connection  with  the 
other  words  of  the  contract.  Under  modern  insurance  practice 
question  is  more  apt  to  arise  as  to  the  meaning  of  the  words 
"at  and  from"  in  connection  with  hull  insurance  written  on  the 
voyage  basis. 

Attachment  of  Cargo  Insurance. — Often  policies  will  be  worded 
to  attach  when  the  goods  are  receipted  for  by  the  transportation 
company,  in  which  case  dock  insurance  is  provided.     Such  pro- 


THE  POLICY.     THE  TERMINI  133 

tection  may  have  a  time  limit  in  order  to  guard  the  underwriter 
against  a  long  wharf  risk.  Likewise  at  the  point  of  destination 
the  insurance  may  be  continued  for  a  stated  period  after  dis- 
charge from  the  steamer  or  lighter,  or  it  may  cover  in  custom 
stores  or  other  places  of  deposit  for  definite  periods  awaiting 
acceptance  by  the  consignees  The  granting  of  such  extended 
shore  risks,  however,  should  be  closely  watched  as  an  under- 
writer may  thus  assume  risks,  which,  because  of  congestion,  may 
greatly  exceed  his  carrying  capacity.  Clauses  of  this  description 
may  also  grant  protection  much  beyond  that  afforded  in  the  ordi- 
nary "warehouse  to  warehouse"  clause.  Since  under  the  latter 
form  the  risk  ceases  when  the  goods  are  delivered  into  any 
store  or  warehouse  at  destination,  whereas  the  shore  insurance 
on  time,  if  not  restricted  by  modifying  words  such  as  ''for  thirty 
days  unless  sooner  warehoused,"  may  give  the  underwriter 
an  extended  risk  in  an  undesirable  place  of  storage  after  transit 
has  ceased. 

Risk  after  Discharge  from  Vessel. — It  is  important  to  observe 
a  distinction  in  meaning  between  a  policy  reading,  "including 
the  risk  on  the  wharf  after  discharge  from  the  steamer  for  not 

exceeding days,   commencing  upon  discharge,"  and  one 

reading  "  including  the  risk  on  the  wharf  for  not  exceeding 

days  after  commencement  of  discharge. "  In  the  first  policy  the 
specific  time  on  the  wharf  begins  to  run  from  the  moment  each 
individual  package  is  discharged,  a  moment  in  most  cases  difficult 
of  determination;  whereas  in  the  second  policy  the  time  begins 
to  run  from  the  moment  the  vessel  begins  to  discharge  or  "breaks 
bulk"  as  it  is  known,  the  time  of  discharge  of  the  particular 
goods  insured  under  the  policy  being  of  no  consequence. 

Attachment  of  Hull  Risks  on  Time. — To  determinate  the 
point  of  attachment  on  hull  insurance  presents  some  peculiar 
difficulties.  If  the  insurance  is  written  on  time,  the  point  of 
attachment  is  of  course  determined.  In  such  cases  it  is  usually 
presumed  that  the  vessel  is  in  port  and  in  good  safety  but  this 
is  not  necessarily  so.  When  single  vessel  risks  are  under  con- 
sideration it  should  be  insisted  that  the  vessel  be  in  port  and  in 
good  safety  at  the  date  of  the  attachment.  This  requirement  im- 
poses no  hardship  on  the  assured,  as  all  hull  time  policies  contain 
a  clause  similar  in  import  to  the  following: 


VM  MAh'IXK  IXSUR.WCE 

"Should  the  vessel  at  the  expiration  of  this  policy  be  :it  sea,  or  in 
distress,  or  at  a  port  of  refuge  or  of  call,  she  shall,  provided  previous 
notice  be  given  to  the  underwriters,  be  held  covered  at  a  pro  rata 
monthly  premium,  to  her  port  of  destination." 

Thus  there  would  seem  to  be  no  sufficient  reason  in  the  case  of 
a  single  vessel  risk  why  the  attachment  should  take  place  while 
the  vessel  is  at  sea.  In  the  case  of  fleet  insurance  a  different 
condition  exists.  In  this  case  the  insurance  usually  attaches 
at  the  same  date  on  all  the  vessels  of  a  fleet,  and  naturally  some  of 
the  vessels  will  be  at  sea  while  others  are  in  port.  Custom  has 
established  the  practice  of  disregarding  the  position  of  the  vessels 
of  a  fleet  at  the  time  of  attachment.  The  question  concerning 
which  of  two  policies  should  respond  for  the  loss  of  a  vessel,  which 
sailed  before  the  date  of  attachment  of  the  second  policy  but 
was  never  heard  of  again,  would  have  to  be  determined  by  the 
circumstances  in  each  particular  case. 

Attachment  of  Voyage  Risks  on  Hull. — In  the  matter  of  voyage 
insurance  on  hulls,  the  time  of  attachment  is  determined  by  the 
wording  of  the  policy.  If  the  contract  reads  "from  a  port" 
the  risk  will  attach  from  the  moment  the  vessel  sails  or  breaks 
ground  as  it  is  technically  called,  with  the  intention  of  proceeding 
on  the  insured  voyage.  If  the  insurance  is  written  "at  and  from 
a  port,"  the  time  of  attachment  is  more  difficult  to  determine. 
It  would  seem  to  be  the  fair  meaning  of  the  words,  and  there  are 
decisions  which  support  this  view,  that  the  risk  attaches  when 
the  vessel  is  at  the  port  and  is  either  in  readiness  to  take  cargo 
for  the  proposed  voyage,  or  the  captain  or  the  vessel's  agents  have 
made  some  preparation  looking  to  the  prosecution  of  the  voyage. 
The  mere  fact  that  a  vessel  is  in  port  with  no  definite  employment 
or  with  no  preparation  being  made  to  fit  her  for  proposed  em- 
ployment, will  not  cause  a  policy  reading  "at  and  from"  to 
attach.  The  safest  practice  is  to  consider  that  under  a  voyage 
hull  policy  reading  "at  and  from"  the  insurance  attaches  only 
when  the  vessel  goes  on  the  berth  to  load.  In  order  that  there 
may  be  no  lapse  between  voyage  policies  a  clause  reading,  "this 
pohcy  not  to  attach  until  expiry  of  previous  policies"  may  be 
inserted  in  the  contract.  It  is  customary  for  a  voyage  policy 
on  hull  to  terminate  twenty-four  hours  after  arrival  in  good 


THE  POLICY.     THE  TERMINI  1.35 

safety  at  the  port  of  destination  or  as  the  Lloyd's  form  of  policy 
reads,  "until  she  hath  moored  at  anchor  twenty-four  hours  in 
good  safety. "  The  intent  of  either  clause  is  that  the  risk  shall 
continue  not  only  for  twenty-four  hours  after  mere  arrival,  but 
a  full  twenty-four  hour  period  after  arrival  at  the  customary 
anchorage  or  harbor  in  the  particular  port,  where  the  vessel  is 
not  exposed  to  the  perils  of  the  voyage. 

Policy  May  Terminate  by  Breach  of  Contract. — While  the 
terminus  ad  quern  is  dependent  on  the  wording  of  the  policy,  the 
assured  may  terminate  the  insurance  short  of  its  ultimate  time 
or  place  of  expiration  by  the  breach  of  any  of  the  expressed  or 
implied  terms  of  the  contract.  The  discussion  of  expressed 
and  implied  warranties  is  reserved  for  a  later  chapter  but  refer- 
ence to  these  warranties  is  necessary  at  this  juncture,  because 
the  breach  of  one  of  them  will  vitiate  the  insurance  and  thus 
introduce  a  new  terminus  ad  quern.  So  the  abandonment  by 
the  assured  of  the  insured  voyage,  or  the  substitution  of  another 
voyage  will  terminate  the  insurance. 

The  Doctrine  of  "No  Deviation." — The  second  sentence  of 
the  paragraph  of  the  printed  form  referring  to  the  inception 
and  duration  of  the  risk  reads,  "and  it  shall  and  may  be  lawful 
for  the  said  vessel,  in  her  voyage,  to  proceed  and  sail  to,  touch  and 
stay  at,  any  ports  or  places,  if  thereunto  obliged  by  stress  of 
weather,  or  other  unavoidable  accident,  without  prejudice  to 
this  insurance. "  No  mention  has  yet  been  made  of  the  "doctrine 
of  no  deviation,"  that  is,  the  implied  condition  that  there  shall 
be  no  departure  from,  or  variation  of  the  insured  voyage  after 
the  risk  has  attached.  Any  inexcusable  violation  of  this  implied 
condition  will  temporarily  or  permanently  terminate  the  insur- 
ance. This  being  so,  the  words  quoted  from  the  printed  form  are 
introduced  in  order  to  excuse  certain  forms  of  deviation  so  that 
the  insurance  may  not  be  suspended  or  automatically  terminated. 
The  exception  to  the  rule  of  deviation  is  of  course  made  as  a 
practical  matter,  and  as  an  inducement  to  the  captain  of  a 
vessel  to  exercise  supreme  care  in  order  to  effect  the  safety  of  the 
venture.  Were  such  deviation  to  make  void  an  insurance,  the 
captain  might  delay  making  for  a  port  of  refuge,  in  the  event  of 
threatening  weather,  thereby  unnecessarily  exposing  the  venture 
to  loss  or  damage.     However,  the  facts  in  a  given  case  must  show 


ISe  MARINE  INSURANCE 

tlio    necessity    for   the   deviation,    otherwise   this   clause    could 
1)0  used  as  a  cloak  for  unlawf  '  acts. 

The  Conduct  of  the  Voyage. — The  implied  conditions  with 
respect  to  deviation  require  that  the  voyage  be  commenced  within 
a  reasonable  time,  that  it  be  pursued  over  the  usual  and  direct 
route  between  the  termini  and  that  the  vessel  be  discharged  with 
customary  dispatch.  If  it  is  a  well-established  usage  of  a  par- 
ticular voyage  that  certain  places  be  used  as  ports  of  call,  the 
use  of  such  ports  will  not  be  considered  a  deviation.  If  the  policy 
provides  that  the  destination  shall  be  ports  in  a  given  locality 
they  must  be  visited  in  their  geographical  order,  unless  there  be 
well-established  usage  to  the  contrary.  If  on  the  other  hand  the 
ports  of  destination  are  specifically  enumerated  in  the  policy, 
they  must  be  visited  in  the  order  named. 

When  Does  Deviation  Occur? — Deviation  may  occur  at  any 
time  after  the  inception  of  the  risk  and  voids  or  suspends  the 
insurance  from  the  moment  the  deviation  commences.  As  a 
general  principle  any  deviation  voids  the  insurance.  Never- 
theless a  deviation  may  be  held  to  only  suspend  the  insurance 
where  the  deviation  is  of  such  short  duration  or  so  temporary  as 
to  be  negligible,  as  a  delay  of  an  hour  or  a  deviation  of  a  mile. 
The  underwriters  would,  however,  be  discharged  from  liability 
for  any  loss  happening  during  such  temporary  deviation.^  The 
mere  intention  to  deviate  does  not  void  the  policy;  there  must  be 
an  overt  act  putting  the  intention  into  operation.  Deviation  is 
excusable  not  only  in  the  cases  enumerated  in  the  printed  form, 
but  also  when  the  vessel  leaves  her  course  in  order  to  save  life. 
It  has  been  held  that  deviation  to  save  property  alone  is  not 
excusable,  but  hull  policies  ordinarily  do  permit  such  deviation 
The  extent  of  the  deviation  or  the  fact  that  it  does  not  materially 
enhance  the  risk  is  of  no  moment  in  deciding  whether  or  not  a 
breach  has  been  committed.  The  mere  fact  that  a  different 
voyage  has  been  substituted  after  the  commencement  of  the  risk 
is  sufficient.  In  order  to  avoid  the  hardships  which  the  doctrine 
of  deviation  imposes  on  innocent  cargo  owners,  who  have  no  voice 
in  the  conduct  or  management  of  the  vessel,  it  is  customary  to 
insert  in  cargo  policies,  the  "deviation  clause"  which  holds  the 
assured  covered  in  the  event  of  deviation  or  change  of  voyage, 
•See  Phillips,  Section  989. 


THE  POLICY.     THE  TERMINI  137 

the  assured  agreeing  to  notify  the  underwriter  as  soon  as  knowl- 
edge of  the  deviation  is  brought  to  his  attention  and  to  pay  such 
additional  premium  as  may  be  required.  It  should  be  observed, 
however,  that  this  clause  ordinarily  does  not  extend  protection 
in  the  event  of  the  substitution  of  a  different  vessel.  As  deviation 
in  the  case  of  time  hull  insurance  would  automatically  void  the 
policy  for  the  remainder  of  the  policy  term,  a  deviation  clause 
similar  to  that  in  cargo  policies  is  inserted  or  it  is  provided  that 
in  the  event  of  deviation  the  underwriters  shall  not  be  liable  for 
loss  occurring  while  the  vessel  is  out  of  the  policy  limits. 

The  Valuation. — The  final  sentence  in  the  paragraph  under 
consideration  reads,  "The  said  goods  and  merchandises  hereby 

insured,  are  valued   (premium  included)  at  . "     In 

general  policies  may  be  divided  into  two  classes,  namely,  valued 
and  unvalued.  Valued  policies  represent  approximately  ninety- 
nine  percent  of  all  those  written,  unvalued  policies  being  rather 
rare  except  in  the  case  of  carriers  liability  policies  to  which 
refere^ice  has  been  made.  The  purpose  of  the  valuation  clause 
is  to  predetermine  the  worth  of  the  property  insured,  so  that  in 
the  event  of  loss  this  will  not  be  an  open  question.  Herein  is 
seen  one  of  the  principal  differences  between  marine  insurance 
and  other  forms  of  indemnity  contracts.  In  fire  insurance  as  a 
rule  policies  are  not  valued,  but  the  policy  is  written  for  a  definite 
amount,  with  the  valuation  of  the  subject  matter  left  open  and 
subject  to  determination  after  loss  has  occurred.  Also  in  life  or 
accident  insurance  the  human  life  is  not  valued,  although  in 
accident  insurance  we  may  find  that  the  amount  of  insurance 
furnished  on  weekly  earnings  may  be  limited  to  the  earning  power 
of  the  man.  In  marine  insurance  on  the  other  hand,  from  the 
earliest  times,  it  has  been  customary  for  the  underwriter  and 
assured  mutually  to  agree  on  the  value  of  the  insured  subject. 
Having  decided  on  this  value  or  basis  of  valuation  neither  party 
to  the  contract  can  raise  objection  after  loss  on  the  ground  that 
the  value  is  too  low  or  too  high,  unless  it  should  appear  that  a 
fraudulent  valuation  has  been  imposed  on  either  party. 

Determination  of  Value. — As  already  pointed  out  marine 
insurance  endeavors  so  far  as  is  humanly  possible  to  give  perfect 
indemnity  to  the  assured.  The  assured  ships  goods  to  a  distant 
port  with  the  reasonable  expectation  that  they  will  realize  a 


1  ;^S  .1/ .  1  /.7 A  l<:  ISS UHA  nce 

certain  price,  perhaps  greatly  in  excess  of  tlieir  cost  to  him. 
To  phice  (he  goods  in  this  particular  market  will  necessitate 
the  incurring  of  various  expenses,  such  as  freight,  insurance 
premium,  packing,  cartage,  customs  charges  and  agents  commis- 
sions, so  that  the  value  will  be  a  constantly  changing  one  and 
were  it  not  possible  to  predetermine  a  value  many  intricate 
(luestions  would  arise  as  to  the  real  value  at  the  time  of  loss, 
which  might  occur  at  any  point  on  the  proposed  passage.  It 
is  far  simpler,  and  in  practice  works  a  fair  measure  of  justice, 
to  fix  a  reasonable  value  and  adhere  to  tliat. 

Valued  Policies  in  Marine  Insurance  Justified. — Perhaps  in 
fire  and  other  branches  of  insurance,  the  chief  objection  to  valued 
policies  arises  out  of  the  question  of  moral  hazard.  A  man  is  in 
possession  and  control  of  his  fixed  property,  and  the  possibility 
of  obtaining  insurance  at  a  determined  valuation,  might  induce 
him  to  accomplish  the  destruction  of  his  property  in  order  to 
obtain  this  fixed  value  from  his  underwriters.  Human  nature 
being  what  it  is,  the  practice  of  having  open  values  on  fixed 
property  is  manifestly  sound.  On  the  other  hand,  valued  policies 
in  marine  insurance  are  justified  by  the  fact  that  the  subject 
matter  is  moveable  property,  and  in  the  case  of  merchandise 
at  least  is  out  of  the  custody  and  control  of  the  assured.  While 
the  moral  hazard  is  still  present,  the  assured  cannot  compass  the 
destruction  of  his  property,  without  collusion  on  the  part  of  those 
in  custody  of  the  property.  In  the  case  of  hull  insurance  in  a 
time  of  commercial  stagnation,  when  there  are  more  ships 
than  there  is  employment  for  them,  the  valued  policy,  especially 
the  high  valued  policy  is  a  real  menace  to  underwriters.  The 
insured  subject  in  such  cases  is  under  the  control  of  the  assured 
and  an  unscrupulous  owner  may  be  tempted  to  destroy  an  un- 
profitable vessel  in  order  to  obtain  the  insurance  money. 

The  Basis  of  Valuation. — In  a  single  risk  policy  the  valuation 
may  be  expressed  as- "valued  at  sum  insured,"  or  "valued  at 

% . "     In  floating  policies,  however,  it  is  only  possible 

to  have  a  basis  of  value,  such  as  "valued  at  invoice  cost  plus 
ten  percent  plus  prepaid  or  guaranteed  freight,"  or  in  the  case  of 

imported  goods  "valued  at  S the  £  sterling  or  the  franc 

of  invoice;"  or  a  fixed  value  per  unit  of  measure  may  be  agreed 
upon.     Under  this  form  of  policy  it  happens  many  times  that  the 


THE  POLICY.     THE  TERMINI  130 

individual  shipments  applicable  to  the  floating  policy  are  not 
known  until  after  the  risk  has  terminated  by  arrival  or  by  the 
loss  of  the  vessel.  In  cither  case  were  the  basis  of  valuation 
not  determined  endless  disputes  would  arise  as  to  the  amount  of 
loss  suffered  by  the  assured,  or  as  to  the  amount  of 
premium  to  which  the  underwriter  is  entitled,  since  the  premium 
is  charged  at  predetermined  rates  applied  to  the  insured  amounts. 
Hull  Values. — In  the  case  of  hull  insurance,  the  valuation  is 
always  expressed  in  dollars.  Owing  to  the  large  values  involved 
in  the  modern  cargo  or  passenger  steamer,  it  is  usual  to  divide 
the  valuation  into  parts,  one  applying  to  the  hull,  tackle  and 
furniture  of  the  steamer,  the  other  to  its  machinery.  In  the 
case  of  expensively  fitted  passenger  steamers  or  of  refrigerated 
vessels,  a  further  separation  may  be  made  showing  the  value 
of  the  cabin  outfit  or  the  refrigerating  plant.  No  problem 
is  more  difficult  than  that  of  determining  a  fair  insured  value  for  a 
vessel  nor  is  any  problem  more  important  from  the  viewpoint 
of  sound  and  conservative  underwriting.  The  purpose  in  sepa- 
rating the  value  of  a  steamer  into  parts  is  to  permit  of  claims 
for  smaller  losses  being  made,  the  percentage  of  loss  necessary 
to  make  a  claim  being  applied  to  each  separate  valuation  or 
to  the  whole  value,  whichever  method  is  most  advantageous  to 
the  assured. 


niAPTER  8 
THE  POLICY  (Continued).     THE  "PERILS"  CLAUSE 

Perils  Insured  Against. — The  quaintest  portion  of  the  marine 
insurance  policy  and  that  part  of  it  which  most  clearly  shows 
that  it  is  a  document  that  originated  many  j^ears  ago,  is  the 
paragraph  dealing  with  the  perils  insured.  These  hazards 
are  not  listed  in  any  logical  order,  marine  perils  and  war  perils 
following  each  other  indiscriminately,  indicating  that  this  portion 
of  the  policy  at  least  was  the  result  of  evolution,  new  perils  being 
added  as  commerce  developed  and  as  new  difficulties  were 
encountered  by  mariners  in  extending  the  scope  of  their  com- 
mercial activities.  Words  are  used  which  have  become  obsolete 
and  leave  in  doubt  the  precise  form  of  peril  which  the  early 
underwriter  and  merchant  had  in  mind.  General  words  follow 
the  specific  enumeration  of  hazards  making  obscure  the  true 
intent  of  the  policy.  Read  without  reference  to  the  wealth 
of  legal  lore  referring  to  this  particular  part  of  the  policy,  the 
document  is  vague,  misleading  and  perhaps  unintelligible. 
But  practically  every  word  in  the  paragraph  has  been  weighed 
in  the  judicial  balance  and  its  own  meaning  and  its  meaning 
in  relation  to  the  context  has  been  determined.  Therefore 
this  particular  wording  has  continued  through  the  centuries, 
with  some  slight  modifications  appearing  in  the  various  forms 
of  the  individual  companies,  but  in  general  the  same  wording 
being  followed  in  all.  No  company  cares  to  adopt  an  entirely 
new  wording,  lest  the  established  practices  and  decisions  of  the 
preceding  centuries  be  overthrown  and  a  new  contract,  subject 
to  all  the  dangers  of  new  legal  interpretations,  be  found  to  leave 
the  meaning  of  the  policy  in  doubt. 

A  Formidable  List  of  Calamities. — The  enumeration  of  the 
perils  in  the  printed  form  under  consideration  is  worded  in  the 
following  manner,  i.e., 

140 


THE  POLICY.     THE  ''PERILS"  CLAUSE  141 

"Touching  the  adventures  and  perils  which  the  said 

Insurance  Company  is  contented  to  bear,  and  takes  upon  itself  in  this 
voyage,  they  are  of  the  seas,  men-of-war,  fires,  enemies,  pirates,  rovers, 
thieves,  jettisons,  letters  of  mart  and  countermart,  reprisals,  takings  at 
sea,  arrests,  restraints  and  detainments  of  all  kings,  princes,  or  people, 
of  what  nation,  condition  or  quality  soever,  barratry  of  the  master 
and  mariners,  and  all  other  perils,  losses  and  misfortunes  that  have  or 
shall  come  to  the  hurt,  detriment  or  damage  of  the  said  goods  and 
merchandises,  or  any  part  thereof." 

Truly  this  is  a  formidable  list  of  calamities  and  seems  to  afford 
but  little  hope  of  escape  for  the  underwriter.  The  courts,  how- 
ever, have  been  reasonably  kind  to  the  underwriters  in  their 
interpretation  of  these  perils  and  have  in  most  cases  tempered 
justice  with  mercy. 

Doctrine  of  Proximate  Cause. — It  will  be  noted  that  the 
policy  applies  only  on  the  voyage  insured  and  covers  only  losses 
occasioned  by  the  perils  stipulated,  provided  these  hazards 
or  any  one  of  them  is  the  proximate  cause  of  the  loss.  The 
dontrinp;  nf  prnyimatf>  cause  is  in  no  way  peculiar  to  the  subject 
of  marine  insurance,  since  it  is  a  familiar  principle  of  all  law 
concerning  the  liability  of  one  person  to  another  for  injury 
suffered.  This  principle  of  fixing  liability  by  considering  the 
direct,  primary  and  immediate  cause  of  the  injury  suffered 
and  not  the  remote  and  indirect  cause,  is  of  the  greatest 
importance  in  determining  liability  under  marine  insurance 
policies.  Phillips  in  Section  1132  of  his  admirable  work  on  the 
law  of  marine  insurance  sets  forth  the  determination  of  the 
proximate  cause  in  these  words: 

"In  case  of  the  concurrence  of  different  causes,  to  one  of  which  it  is 
necessary  to  attribute  the  loss,  it  is  to  be  attributed  to  the  eflicient 
predominating  peril,  whether  it  is  or  is  not  in  activity  at  the  consumma- 
tion of  the  disaster." 

That  is,  if  at  the  time  of  disaster  there  are  in  operation  two 
perils,  one  of  which  is  covered  under  the  policy  and  the  other 
is  not,  as  in  the  case  of  a  marine  peril  operating  at  the  same  time 
as  a  war  peril,  it  must  be  determined  which  of  the  two  perils 
is  the  all  efficient  and  predominating  one  which  caused   the 


142  MARINE  INSURANCE 

resultant  loss.  The  fact  that  the  hazard  which  was  the  proximate 
cause  was  not  in  activity  at  the  moment  of  destruction  would 
not  preclude  tliat  j>eril  from  being  the  actual  and  officient  cause 
of  disaster.  To  illustrate,  a  steamer  insured  under  a  policy 
covering  marine  risks  only,  might  be  torpedoed,  but  nevertheless 
still  float  and  have  a  reasonal:)le  chance  of  making  port.  Because 
she  is  partially  out  of  control  of  the  master,  however,  on  account 
of  making  water  and  having  a  heavy  list,  in  endeavoring  to 
make  port  the  steamer  might  miss  the  channel,  run  ashore 
and  become  a  total  loss.  The  immediate  cause  of  the  total 
destruction  of  the  vessel  would  undoubtedly  be  the  stranding, 
a  marine  peril,  but  the  proximate  cause  would  be  the  torpedo- 
ing, a  war  peril,  and  the  loss  should  not  fall  on  the  marine 
underwriter. 

Losses  Which  are  not  Covered  by  the  Policy. — It  must  be  borne 
in  mind  that  while  an  underwriter  is  liable  for  losses  caused 
by  perils  of  the  sea,  the  meaning  of  which  will  be  explained 
presently,  he  is  not  necessarily  liable  for  perils  on  the  sea.  The 
underwriter  is  not  liable  for  the  ordinary  and  inevitable  action 
of  the  forces  of  nature  causing  ordinary  wear  and  tear  to  the 
vessel.  He  is  not  liable  for  the  natural  decay  of  the  vessel 
due  to  the  passage  of  time.  He  is  not  liable  for  loss  arising 
from  the  subject  itself  because  of  its  inherent  qualities,  nor  is  he 
liable  for  a  fire  arising  from  the  improper  preparation  of  a  raw 
commodity,  as  for  instance  the  occurrence  of  spontaneous  com- 
bustion in  a  cargo  of  hemp  which  was  shipped  in  an  improperly 
cured  condition.  But  it  seems  he  may  not  deny  liability  for 
consequent  damage  to  property  insured  by  him  belonging  to 
another  which  is  part  of  the  same  venture.  Neither  is  the  under- 
writer responsible  for  loss  caused  by  the  ordinary  leakage  of 
liquids.  He  is  liable,  however,  for  events  which,  through  no 
fault  of  the  assured,  enhance  the  risk,  as  for  instance  unavoidable 
delay  in  the  commencement  or  prosecution  of  the  voyage, 
by  which  the  time  at  risk  under  the  policy  is  increased  beyond 
that  in  contemplation  by  the  underwriter  at  the  time  of  accepting 
the  risk.  Therefore,  if  a  policy  in  time  of  peace  covers  the  risks 
of  war  at  a  determined  rate  for  a  named  period,  and  war  sud- 
denly breaks  out,  the  underwriter  is  not  relieved  of  his  respon- 
sibility, notwithstanding  the  fact  that  the  compensation  that  he 


THE  POLICY.     THE  ''PERILS"  CLAUSE  143 

is  receiving,  through  the  occurrence  of  an  unforeseen  event,  is 
inadequate. 

Losses  Due  to  Fraud  or  Misconduct. — An  underwriter, 
obviously,  is  not  responsible  for  losses  caused  by  perils  insured 
against,  which  are  directly  incurred  by  fraud  or  misconduct, 
but  it  must  be  shown  that  such  fraud  or  misconduct  is  the 
proximate  cause  of  such  loss.  Negligence  in  order  to  void  the 
policy  must  amount  to  gross  negligence  or  to  willful  misconduct. 
Errors  of  judgment  on  the  part  of  the  captain  of  a  vessel  will  not 
forfeit  the  insurance,  but  willful  misconduct  done  in  bad  faith 
and  illegally,  or  gross  carelessness  of  the  captain,  showing  culpa- 
bility, will  not  be  covered  by  the  policy  unless  barratry,  which 
term  will  later  be  explained,  also  is  covered.  In  connection  with 
the  preceding  remarks  it  should  be  noted  that  Congress  in  1893, 
in  order  to  promote  the  overseas  commerce  of  the  United  States, 
passed  what  is  known  as  the  ''HarterAct"  (see  Appendix, 
p.  417).  This  statute  relieves  the  owner  of  a  ship  from  the  conse- 
quences of  careless  or  negligent  acts  on  the  part  of  the  master  of 
the  vessel,  or  from  liability  for  losses  caused  by  inherent  defects 
or  weakness  in  the  vessel  itself,  provided  the  owner  or  his  man- 
ager has  taken  all  precautions  to  provide  a  seaworthy  vessel, 
which  has  been  adequately  equipped  and  manned  by  a  competent 
master  and  crew.  Similar  statutes  are  found  in  the  laws  of  other 
maritime  nations. 

Perils  of  the  Sea. — In  the  enumeration  of  the  hazards  against 
which  protection  is  afforded  by  the  policy,  perils  of  the  sea  are 
first  mentioned.  These  are  the  general  words  used  to  describe 
all  losses  which  are  the  result  of  the  unusual  action  of  the  forces 
of  nature  operating  in  and  about  navigable  waters,  A  careful 
distinction  must  be  made,  however,  between  ''perils  of  the  seas" 
and  "perils  on  the  seas."  The  policy  does  not,  under  the  form 
of  wording  used,  cover  all  perils  which  may  overtake  the  venture 
on  the  seas,  but  only  those  which  are  the  direct  result  of  actual 
perils  of  the  sea.  Included  in  these  general  words  are  losses 
resulting  from  the  unusual  action  of  the  wind,  not  the  ordinary 
wear  and  tear  caused  by  the  ever-moving  atmosphere,  but  losses 
resulting  from  the  tempestuous  action  of  this  force.  It  is  not 
necessary  that  the  resultant  loss  be  an  immediate  effect  of  wind 
as  the  loss  of  sails  or  the  snapping  of  a  mast.     It  may  be  a  con- 


11  1  M.\i:i.\E  INSURANCE 

siH|iU'n(i;il  l()s>s  occasioned  l)y  llic  wind,  as  tiic,  leaking  of  the  seams 
of  a  v(>ss(>l,  through  unusual  strain  on  sails  and  masts  by  excessive 
wind  pressure. 

Enumeration  of  Perils  of  the  Sea. — The  tempestuous  action 
of  the  waves  causing  a  vessel  to  be  buffeted  and  battered  by  the 
force  of  the  water  is  a  peril  of  tlic  sea,  as  are  also  the  risks  of 
stranding  on  reefs,  rocks  and  shoals.  Loss  caused  by  the  action 
of  lightning  is  also  a  peril  of  the  sea,  lightning  being  distinguished 
from  fire,  in  that  loss  may  be  occasioned  by  the  action  of  lightning 
without  any  fire  resulting.  Collision  is  also  one  of  the  perils  of 
tht  sea,  occasioned  as  it  often  is,  through  the  presence  of  fog  or 
darkness  or  ice  or  other  natural  condition  interfering  with  the 
navigation  of  the  vessel.  Collision  ma}^  involve  the  coming 
together  of  vessel  with  vessel  or  the  collision  may  be  of  one 
vessel  with  an  iceberg  or  with  some  other  floating  or  stationary 
object.  The  use  of  the  word  "collision"  as  a  peril  of  the  sea 
should  not  be  confused  with  the  protection  provided  under 
marine  policies  on  hulls,  wherein  the  underwriter  assumes 
responsibility  for  the  liability  imposed  upon  the  owner  of  a 
vessel  for  loss  caused  to  innocent  third  parties  by  the  negligent 
collision  of  his  vessel  with  another. 

Unavoidable  Accident  a  Peril  of  the  Sea. — "Perils  of  the  sea" 
will  also  cover  unavoidable  accident,  the  result  of  the  physical 
topography  of  the  ocean  shores  and  the  ocean  bed.  For  instance 
a  vessel  in  a  properly  equipped  tidal  harbor  may  take  the  bottom 
in  a  place  where  through  action  of  the  tide  or  through  some  other 
unavoidable  cause  the  bottom  is  uneven,  causing  the  vessel  to 
tip  with  resultant  damage  to  the  hull  or  cargo.  Derangement  of 
or  damage  to  the  machinery  of  a  steamer  or  mechanically  pro- 
pelled vessel  through  stress  of  weather  or  other  fortuitous  cause 
is  also  covered  under  the  general  words  "perils  of  the  sea." 

Other  Perils  of  the  Sea. — The  policy  covers  seawater  damage 
due  to  an  insured  peril  and  it  has  been  held  that  injury  caused  by 
rats  on  board  ship  is  also  a  peril  of  the  sea  provided  the  owner  and 
captain  have  exercised  reasonable  care  to  rid  the  vessel  of  this 
pest.  It  would  seem,  however,  that  damage  by  rats  is  rather  a 
peril  on  the  sea,  than  a  peril  of  the  sea,  and  that  underwriters 
should  not  be  held  liable  for  losses  of  this  nature  unless  specially 
insured  against.     In  fact,  it  is  so  ruled  in  paragraph  55,  Section 


THE  POLICY.     THE  "PERILS"  CLAUSE  145 

(C)  of  tlic  Marine  Insurance  Act  of  Great  Britain.  Sinking,  of 
course,  is  comprehended  in  the  term  "perils  of  the  sea"  this  being 
the  inevitable  result  of  most  of  the  "perils  of  the  sea"  if  their 
action  is  not  controlled  and  checked. 

Fire. — It  will  be  more  logical  to  ignore  the  sequence  of  the 
hazards  as  they  appear  in  the  printed  form  and  consider  first 
the  perils  which  are  marine  in  their  nature  and  then  treat  of 
those  which  are  the  result  of  the  acts  of  individuals  or  of  nations. 
Fire  is  specifically  mentioned  as  this  is  not  a  peril  of  the  sea  but 
a  peril  on  the  sea.  The  underwriter  is  liable  not  only  for  the  ac- 
tual cargo  or  the  particular  part  of  the  vessel  destroyed  by  fire, 
but  is  also  liable  for  consequential  losses  resulting  from  the  fire. 
Thus  the  underwriter  assumes  responsibility  for  damage  caused 
by  water  or  steam  used  in  the  hold  of  a  vessel  in  an  endeavor  to 
smother  the  fire,  or  by  the  action  of  smoke  damaging  cargo  not 
touched  by  the  fire,  or  penetrating  other  holds  not  involved  in 
the  fire  (see  General  Average,  p.  307).  The  underwriter  is  also 
liable  for  the  action  of  chemicals  or  gases  used  in  an  endeavor  to 
smother  the  fire,  as  in  the  case  of  some  of  the  patent  fire  extin- 
guishing apparatus  with  which  vessels  are  equipped. 

Fire  Protection. — Fire  is  one  of  the  greatest  and  most  feared 
dangers  which  mariners  face.  A  great  deal  has  been  done  by 
the  installation  of  fire-fighting  devices  and  fire  detectors  to  pre- 
vent and  control  fires  at  sea,  but  much  remains  still  to  be  done. 
Perhaps  no  problem  connected  with  marine  perils  offers  a  more 
fertile  field  for  the  inventor  than  does  this.  Fire  control  on  sea 
is  materially  different  from  that  on  land  and  yet  in  some  respects 
is  essentially  the  same.  Steam  injectors  take  the  place  of 
stand  pipes  in  buildings.  Fireproof  and  watertight  bulkheads 
correspond  to  the  fire  walls  in  land  structures,  while  sprinkler 
systems  so  common  in  buildings  have  been  installed  in  but 
few  steamers.  When  the  depth  of  a  steamer's  hold  is  considered, 
the  futility  of  the  ordinary  form  of  sprinkler  will  be  seen.  A  fire 
starting  at  the  bottom  would  probably  attain  such  headway, 
before  the  sprinkler  would  work,  that  it  would  be  useless  even  if 
it  were  possible  for  the  water  to  reach  the  scat  of  the  fire.  Above 
the  lower  deck  of  a  vessel  where  the  height  of  the  cargo  space  is 
not  great  sprinklers  are  very  effective,  if  enough  heads  are  pro- 
videtl,  but  the  problem  of  a  walor  supply  by  gravity  feed  is  not 


140  MAh'IXE  INSURANCE 

so  easy  as  on  land.  A  dry  system  may,  however,  be  used.  It 
must  be  remembered  tliat  when  at  sea  the  hatches  of  a  vessel 
are  usually  closed,  so  that  a  fire  may  smolder  and  attain  a  firm 
hold  on  the  cargo  some  time  before  it  is  detected.  Up  to  the 
present,  steam  introduced  into  the  hold  by  means  of  steam  pipes 
so  installed  as  to  give  a  good  distribution  of  steam  over  the  entire 
hold,  has  been  found  most  effective  in  the  control  of  fires.  Other 
devices  introducing  gases  which  absorb  the  oxygen  in  the  hold 
and  thus  smother  the  llame  are  very  effective,  but  their  installa- 
tion is  expensive  and  the  chemicals  used  sometimes  do  a  great 
amount  of  damage  to  the  cargo.  While  the  fire  hazard  does  not 
affect  the  seaworthiness  of  the  vessel,  in  the  ordinary  meaning 
of  that  term,  from  the  viewpoint  of  the  marine  underwriter  the 
design  and  equipment  and  loading  of  a  vessel  with  respect  to  the 
fire  hazard  has  a  material  bearing  on  the  seaworthiness  of  the 
vessel  as  an  underwriting  proposition. 

Jettison. — Jettison  is  another  peril  on  the  sea,  but  not  of  the 
sea,  wliich  is  specially  covered  by  the  policy.  Jettison  is  defined 
by  Philhps  (Section  1278)  as, 

"the  throwing  overboard  of  part  of  the  cargo,  or  of  an j' article  on 
board  of  a  ship,  or  the  cutting  away  of  masts,  spars,  rigging,  sails,  or 
other  furniture  for  the  purpose  of  lightening  or  relieving  the  ship  in  case 
of  necessity  or  emergency." 

Jettison  must  be  distinguished  from  "washing  overboard" 
which  is  a  peril  of  the  sea  with  respect  to  cargo  which  is  laden 
and  specially  insured  on  deck.  Jettison  is  a  voluntar}^  act  done 
for  the  purpose  of  saving  the  generp.l  interest.  The  early  mari- 
ners in  their  frail  craft,  found  that  the  best  way  to  save  their  lives 
and  their  ships  in  the  event  of  storm  was  to  throw  cargo  out  of 
the  ship  to  lighten  it.  Jettison,  therefore,  was  the  cause  of  many 
of  the  early  losses,  and  proved  a  great  burden  to  the  merchants. 
At  a  very  early  period  in  commercial  history,  losses  by  jettison  were 
considered  as  sacrifices  made  in  the  common  interest  and  were 
treated  as  general  average  losses  for  which  contribution  was  made 
by  all  interested  parties.  With  the  invention  of  insurance  this 
practice  was  firmly  established,  so  that  underwriters  today  are 
more  interested  in  the  method  of  contributing  for  loss  by  jetti- 
son than  in  the  actual  jettison  itself. 


THE  POLICY.     THE  "PERILS"  CLAUSE  147 

Barratry. — Jettison  being  a  voluntary,  justifiable  act  of  the 
master  of  the  vessel,  it  will  be  proper  to  consider  next  the  peril 
of  barratry  which  is  occasioned  by  the  willful  misconduct  of  the 
master  or  the  mariners.  Barratry  is  defined  as  a  fraudulent 
breach  of  duty  or  a  willful  act  of  known  illegality  on  the  part  of 
the  master  of  a  ship,  in  his  character  of  master,  or  of  the  crew, 
to  the  injury  of  the  owner  of  the  ship  or  cargo  and  without  his 
consent.  It  includes  every  breach  of  trust  committed  with  dis- 
honest purpose,  as  by  running  away  with  the  ship,  sinking  or 
deserting  her  or  by  embezzling  the  cargo.  At  the  present  time 
with  the  rapid  means  of  communication  existing  between  the 
ends  of  the  earth,  barratry  has  become  a  rather  unprofitable  and 
dangerous  occupation.  In  former  times,  however,  when  a  ves- 
sel would  be  unheard  of  for  months  at  a  time,  it  was  not  unusual 
for  the  captain  to  use  the  ship  for  his  own  purposes.  Such  un- 
lawful act  was  barratry  and  a  loss  occurring  during  such  misuse 
of  the  vessel  would  not  be  covered  unless  barratry  was  included 
among  the  insured  perils.  So  willful  violations  of  law,  such  as  the 
violation  of  a  blockade  or  an  embargo,  or  trading  with  the  enemy, 
even  though  done  for  the  purpose  of  benefiting  the  owners  are 
barratrous  acts.  The  willful  action  of  the  master  or  the  mariners 
in  putting  the  vessel  in  a  position  of  peril  by  disobeying  the  in- 
structions of  an  authorized  pilot  or  cutting  a  cable  so  that  the 
vessel  would  run  ashore,  or  proceeding  on  a  voyage  when  cap- 
ture by  the  enemy  was  certain  and  other  like  cases  have  been 
held  to  be  barratrous  acts.  In  any  particular  case  it  is  necessary 
to  distinguish  between  willful  misconduct  and  errors  of  judg- 
ment, although  gross  ignorance  and  recklessness  on  the  part  of  the 
master  may  amount  to  barratry.  As  the  master  is  the  agent  of 
the  owner  in  the  management  of  the  vessel,  it  is  quite  usual  to 
except  the  risk  of  barratry  of  the  master  in  an  insurance  on  the 
hull.  This  seems  logical  as  it  is  rather  strange  to  insure  the  owner 
of  a  vessel  against  the  wrongful  acts  of  one  who  he  himself  has 
intrusted  with  the  care  of  the  ship.  With  respect  to  the  mariners 
the  case  is  different  in  that  these  men  are  not  directly  chosen  by 
the  owner,  but  rather  by  the  master.  It  is  quite  reasonable, 
however,  that  the  cargo  owner  who  has  no  voice  in  the  selection 
of  the  master  or  crew  should  have  protection  against  their  wrong- 
ful acts. 


MS  MARLXE  INSURANCE 

Lawless  Acts  and  War  Perils. — The  remaining  jwrils  specific- 
ally eninneratcd  refer  to  the  overt  acts  of  persons  or  peoples  who 
ai-e  not  connected  with  the  venture  but  who  either  from  personal 
or  national  motives  seek  to  injure,  apprtjpriate  or  tlestroy  the 
ship  and  its  cargo.  These  perils  naturally  group  themselves  into 
two  classes.  The  first  class  includes  perils  which  are  the  result 
of  the  acts  of  inilividuals  or  groups  acting  on  their  own  responsi- 
bility and  without  the  sanction  of  any  recognized  government. 
These  hazards  are  tlcscribed  as  pirates,  rovers,  and  thieves. 
The  second  class  is  composed  of  those  perils  which  are  the  results 
directly  or  indirectly  of  the  belligerent  acts  of  hostile  govern- 
ments. These  latter  acts  aie  supposed  to  be  executed  in  accord- 
ance with  the  principles  of  international  law  and  in  wars  previous 
to  1914  such  law  was  generally  observed.  In  the  recent  World 
War,  however,  at  least  one  of  the  belligerents  set  up  a  new  stand- 
ard of  conduct  claiming  that  might  is  more  powerful  than  right, 
with  the  result  that  marine  underwriters  had  to  revise  their 
preconceived  notions  of  the  hazards  which  belligerent  action 
involved.  The  peril  thieves  describes  the  acts  of  an  individual 
or  a  band  of  individuals  acting  in  contravention  of  the  law 
of  the  place  where  the  criminal  act  of  theft  is  committed, 
while  rovers  and  pirates  describe  similar  acts  committed  on 
the  high  seas  under  the  sanction,  it  may  be,  of  an  unorganized 
and  unrecognized  government  acting  in  defiance  of  international 
law. 

Theft  and  Pilferage. — Theft  may  be  first  considered.  Theft 
as  used  in  the  marine  insurance  policy  is  generally  recognized 
by  merchants  and  by  the  textbook  writers  as  robbery  committed 
by  force  as  distinguished  from  robbery  committed  by  stealth, 
which  latter  form  of  larceny  is  known  by  the  specific  term  "pil- 
ferage." It  was  always  the  intention  of  underwriters  to  protect 
property  on  vessels  from  losses  occasioned  by  the  criminal  acts 
of  those  who  obtained  access  to  the  property  by  force.  Pilfer- 
age, however,  was  not  in  the  contemplation  of  the  underwriter 
when  property  was  insured,  because  such  loss  was  supposed 
to  be  the  result  of  the  criminal  acts  of  those  who  had  a  right  to 
be  with  the  property,  such  as  stevedores  or  others  who  by  stealth 
mingled  with  them  and  thus  had  access  to  the  goods.  Unfortu- 
nately this  theory  and  practice  were  overriden  in  certain  state 


THE  POLICY.     THE  "PERILS"  CLAUSE  149 

courts,  where  the  judges,  in  an  academic  discussion  of  the  mean- 
ing of  the  word  thieves,  ignored  for  the  most  part  the  practice 
of  merchants  and  underwriters  which  of  old  were  the  basis  on 
which  marine  insurance  law  was  determined,  and  held  that  the 
word  thieves  covered  what  is  commonly  known  in  marine  circles 
as  pilferage.  Accordingly  most  policies  in  use  in  the  United 
States  have  inserted  the  words  "assailing  thieves"  in  order  to 
make  clear  the  original  and  present  intention  of  underwriters 
in  insuring  against  theft.  It  is  interesting  to  note  in  this  connec- 
tion that  no  such  interpretation  has  been  given  to  the  word 
thieves  in  the  English  courts  and  in  the  Marine  Insurance  Act, 
paragraph  No.  9  of  the  rules  for  construction  reads,  "The  term 
"thieves"  does  not  cover  clandestine  theft  or  a  theft  committed 
by  any  one  of  the  ship's  company,  whether  crew  or  passengers." 
Such  clandestine  theft  under  the  term  "pilferage"  is  generally  in- 
cluded in  marine  policies  by  special  stipulation  with  unfortunate 
results  to  both  assured  and  underwriter.  This  undesirable  con- 
dition is  due  to  the  fact  that  the  ship  is  not  held  liable  for  this 
petty  thieving.  It  is  against  public  policy  that  the  ship  be 
relieved  of  this  liability  either  by  agreement  in  the  bill  of  lading 
or  otherwise,  nevertheless  no  practical  method  has  been  devised 
for  proving  that  these  losses  occur  while  the  property  is  in  the 
custody  of  the  carrier. 

Pirates  and  Rovers. — The  two  expressions  pirates  and  rovers 
are  hard  to  distinguish,  both  terms  referring  to  depredations 
committed  on  the  high  seas  in  violation  of  the  laws  of  nations  and 
of  such  a  character  that  if  committed  on  the  land  the  crime  would 
amount  to  a  felony.  Pu-ates  and  rovers  are  the  outlaws  of  the 
high  seas  and  the  enemies  of  society  owning  allegiance  to  no 
authorized  government.  It  may  be  that  the  word  pirates  origi- 
nally referred  to  those  who  lay  in  wait  on  the  high  seas,  hoping  to 
entrap  their  victims;  while  the  word  rovers  referred  to  those  who 
sailed  the  high  seas  seeking  their  prey.  Such  inferences  are,  how- 
ever, conjectural.  Gow  suggests  that  the  word  rovers  may  have 
been  added  to  include  specially  the  Mohammedan  sea  robbers 
of  North  Africa.  These  two  perils  have,  however,  become  obsolete 
since  the  United  States  cleared  the  sea  of  the  Barbary  pirates  in 
the  early  part  of  the  nineteenth  century,  though  many  of  the 
acts  committed  in  the  World  War  amounted  to  piracy,  notwith- 


\->0  MARINE  INSURAXCK 

standing  the  fact  that  they  were  committed  under  the  authority 
of  a  so-called  "estabhshed"  government. 

War  Perils.^ — ^The  remainder  of  the  perils  enumerated  in  the 
policy  are  true  war  perils  and  it  was  the  insuring  of  these  risks 
that  caused  the  gigantic  development  in  insurance  in  England 
in  the  latter  part  of  the  eighteenth  and  the  beginning  of  the 
nineteenth  century.  History  has  repeated  itself  and  again  an 
unprecedented  expansion  in  marine  insurance  resulted  from  the 
exigencies  of  the  late  war  and  the  enhanced  risks  to  which  prop- 
erty at  sea  was  exposed.  In  the  enumeration  of  these  war  perils 
difficulty  is  experienced  in  determining  what  is  the  real  meaning 
of  the  words.  Some  of  the  words,  used  to  describe  perils,  have 
become  obsolete  and  others  are  so  ahke  in  meaning  as  to  make 
difficult  any  differentiation  in  the  perils  to  which  they  refer. 

Men-of-war. — The  first  of  the  war  perils  known  as  men-of-war 
is  an  elastic  term  general  enough  in  its  meaning  to  include  all 
the  new  devices  that  new  wars  produce.  "Men-of-war"  refers 
to  the  aggressive  acts  of  a  belligerent  government  committed  on 
the  seas  by  means  of  war  machines.  In  the  early  daj^s  of  inter- 
national strife  men-of-war  was  a  word  which  adequately  described 
the  only  marine  offensive  weapon.  Today,  however,  the  words 
refer  not  only  to  battleships,  the  successors  of  the  former  men-of- 
war,  but  to  submarines,  airplanes,  destroyers,  and  the  equipment 
of  these  devices  in  the  form  of  torpedoes,  mines  and  bombs. 
Mines,  both  stationary  or  floating,  and  all  other  mechanical 
devices  used  by  belligerents  to  effect  the  destruction  of  property 
on  the  sea  are  included  in  the  term  "men-of-w^ar." 

Enemies. — If  there  Vje  question  whether  or  not  any  particular 
offensive  device  is  included  under  the  term  men-of-war,  the  next 
peril,  that  of  enemies  is  broad  enough  to  include  that  device. 
Doubt  has  been  expressed  as  to  whether  cruisers  are  men-of-war, 
but  if  they  are  not  they  certainly  are  enemies  and  can  j&nd  refuge 
under  that  term.  The  peril  of  enemies  would  seem  to  be  em- 
braced by  the  peril  of  men-of-war,  but  it  may  be  that  the  word 
enemies  was  introduced  into  the  marine  policy  to  protect  the 
assured  against  losses  occasioned  by  the  acts  of  privateers  and 
other  openly  declared  foes  under  a  belHgerent  flag,  who  are 
authorized  to  carry  on  warfare  but  who  do  not  belong  to  the 
government  whose  flag  they  fly. 


THE  POLICY.     THE  "PERILS"  CLAUSE  151 

Letters  of  Mart  and  Countermart. — While  privateering  was 
formally  abolished  by  civilized  nations  by  the  Treaty  of  Paris 
in  1856,  the  references  to  this  mode  of  warfare  still  remain  in  the 
policy.  Letters  of  mart  and  countermart  refer  to  privateers. 
These  letters  were  granted  by  belligerents  to  their  citizens  who 
had  suffered  loss  at  the  hands  of  the  enemy  in  order  that  they 
might  recoup  their  losses.  Letters  of  mart  refer  to  the  com- 
missions granted  by  one  of  the  belligerents  to  its  citizens,  while 
letters  of  countermart  describe  the  commissions  granted  by  the 
opposing  belligerent  to  its  citizens  as  a  retaliatory  measure. 
These  letters  granted  a  limited  commission  to  the  privateer, 
who  should  be  distinguished  from  the  pirate,  as  the  former  sails 
under  a  national  flag,  is  under  governmental  commission  and 
operates  only  against  the  declared  enemies  of  his  own  nation. 
The  practice  of  issuing  these  letters  is  now  condemned,  hence 
these  terms  are  relatively  unimportant  to  the  student  of  marine 
insurance. 

Reprisals. — It  is  difficult  to  distinguish  reprisals,  the  next  war 
peril  enumerated,  from  letters  of  mart  and  countermart,  but  the 
word  may  have  been  inserted  in  the  policy  to  cover  losses  occa- 
sioned by  acts  done  in  retaliation  for  wrongs  against  one  nation 
or  its  subjects  committed  by  another  nation  or  its  subjects,  short 
of  actual  war.  The  word  has  been  in  common  use  in  the  recent  war 
with  reference  to  acts  of  retaliation  against  crimes  committed  by 
one  of  the  belligerents  in  violation  of  international  law.  Whether 
or  not  a  similar  meaning  is  intended  in  the  insurance  policy 
is  a  matter  of  conjecture.  It  is  interesting  to  note  that  in  the 
Lloyd's  form  of  policy  the  word  "reprisals"  does  not  appear, 
but  in  its  place  is  found  the  word  "surprisals,"  which  would  seem 
to  be  synonymous  with  "takings  at  sea,"  which  is  the  next  peril 
enumerated  in  the  American  form. 

Takings  at  Sea.  Arrests. — This  expression  is  equivalent  to 
the  modern  word  "capture"  and  refers  to  the  forceful  taking  of 
a  vessel  or  its  cargo  with  the  intention  of  retaining  possession 
thereof.  In  the  recent  war  "capture"  was  the  principal  peril 
to  which  property  of  the  Teutonic  Allies  or  their  sympathizers 
was  subject,  while  men-of-war  describes  the  principal  peril  to 
which  the  property  of  the  rest  of  the  world  has  been  exposed. 
The  word  arrests,  while  similar  in  meaning  to  "takings  at  sea" 


1.52  MARINE  INSURANCE 

li;i.s  reference  more  i);irticul;irly  to  the  capture  of  a  ship  or  car^o 
for  the  i)urpose  of  making  an  examination  and  then  after  adjnch- 
cation,  regaining  or  reh'asing  the  pi'operty. 

Restraints  and  Detainments. — Restraints  refer  to  the  action 
of  a  government  in  estabhsliing  an  embargo  or  other  restrictive 
measure,  thus  preventing  the  free  use  of  its  ports  by  commercial 
vessels,  causing  the  interruption  and  possible  loss  of  voyages 
involving  such  ports  and  perhaps  consequent  sacrifice  of  cargo. 
Detainments  on  the  other  hand  refer  to  losses  resulting  from  the 
detention  of  a  vessel  and  its  cargo  by  blockade  or  possibly  by  a 
quarantine  regulation  or  some  other  interference  by  the  police 
power  of  a  nation  while  a  vessel  is  in  port.  In  this  connection, 
however,  the  use  of  the  word  detainment  does  not  extend  to 
losses  which  are  the  result  merely  of  delay  or  interruption  of  the 
voyage,  and  cause,  for  example,  injury  through  loss  of  market  or 
some  other  remote  cause. 

Kings,  Princes  or  People. — The  modifying  words  "of  all 
kings,  princes  or  people  of  what  nation,  condition  or  quality 
soever"  are  introduced  to  show  that  the  perils  intended  to  be 
covered  are  not  the  mere  acts  of  individuals,  but  the  acts  of 
groups  of  individuals  organized  into  governments,  whether  such 
governments  be  duly  constituted  or  not.  The  rules  of  construc- 
tion of  The  IMarinc  Insurance  Act  of  Great  Britain,  i)aragraph  10, 
state  that  this  phrase  refers  to  political  and  executive  acts,  and 
does  not  include  a  loss  caused  by  riot  or  ordinary  judicial  process. 

All  Other  Perils. — The  closing  words  of  the  "perils  clause" 
reading  "and  all  other  perils,  losses  and  misfortunes,  that  have 
or  shall  come  to  the  hurt,  detriment  or  damage  of  the  said  goods 
and  merchandises,  or  any  part  thereof"  if  unexjjlained  is  exceed- 
ingly misleading.  If  the  words  mean  what  they  state  the 
enumeration  of  specific  perils  would  seem  to  be  needless,  but  the 
very  fact  that  specific  perils  have  been  enumerated  gives  the  key 
that  unlocks  the  meaning  of  these  words.  It  has  been  decided 
more  than  once  that  there  nuist  be  read  into  this  clause  after 
the  words  "and  all  other  perils, "  the  words  "of  the  same  nature." 
It  is  only  fortuitous  perils  happening  while  the  property  is  under 
the  protection  of  the  policy  that  are  covered  by  these  general 
words  and  not  every  conceivable  injury  that  may  come  to  the 
hurt,  detriment  or  damage  of  the  property.     Had  such  construe- 


THE  POLICY.     THE  "PERILS"  CLAUSE  153 

tion  not  been  given  to  this  clause  underwriters  would  have  had 
either  to  revise  the  basic  wording  of  their  policy  or  burden  the 
document  with  exceptions. 

The  "Free  of  Capture"  Clause. — While  the  pohcy  covers  war 
perils,  it  is  customary,  in  view  of  the  hazards  to  which  property  is 
suddenly  subjected  by  the  declaration  of  war,  to  incorporate  into 
marine  policies  a  clause  known  as  the  war  clause  or  the  "free  of 
capture  and  seizure  "  clause  by  which  the  underwriter  is  relieved  of 
all  purely  war  perils.  Various  forms  are  used  to  accomplish  this 
end,  but  they  are  all  alike  in  their  purpose.  By  the  deletion 
of  this  clause  the  pohcy  is  immediately  restored  to  its  original 
condition,  but  the  underwriter  is  then  in  the  position  of  being  ablQ 
to  charge  adequate  rates  of  premium  for  the  increased  hazard 
assumed.  Underwriters  in  their  eagerness  for  business,  have 
sometimes  offered  as  an  inducement  in  times  of  peace,  a  policy 
covering  the  risks  of  war  without  special  charge  or  with  merely 
nominal  addition  for  the  war  hazard;  only  to  find  themselves.,  in 
the  event  of  sudden  war,  committed  to  these  hazards  without 
the  opportunity  of  charging  adequate  premium  for  the  increased 
risk  placed  upon  them. 

Strikers  and  Locked  Out  Workmen  Clause. — Owing  to  the 
fact  that  marine  insurance  on  cargo  is  usually  extended  to  cover 
from  warehouse  to  warehouse  or  otherwise  insures  the  goods  on 
shore  prior  to  shipment  and  after  discharge,  the  danger  of  under- 
writers being  held  liable  for  losses,  resulting  from  the  unlawful 
acts  of  strikers  or  due  to  riots  or  civil  commotions,  is  materially 
enhanced.  In  such  cases  the  loss  is  usually  due  to  fire  but  it  is 
often  difficult  to  prove  whether  the  proximate  cause  of  the  fire 
was  a  natural  cause  or  was  the  result  of  an  unlawful  act.  Under- 
writers are  unwilling  to  assume  liability  for  losses  due  to  such 
unlawful  acts  unless  opportunity  is  afforded  for  the  special  con- 
sideration of  these  risks.  Accordingly  most  cargo  policies  con- 
tain a  clause  similar  in  import  to  the  following,  viz: 

"  Warranted  free  of  loss  or  damage  caused  by  strikers,  locked-out 
workmen  or  persons  taking  part  in  labor  disturbances  or  riots  or  civil 
commotions." 

As  in  the  case  of  the  "Free  of  Capture  and  Seizure  Clause," 
underwriters  will  as  a  rule  waive  the  "strikers  and  locked-out 


\rA  MAUIXK  INSURANCE 

wurknieu"  clause  in  consideration  of  the  payment  of  additional 
premium.  The  clause  recomraeuded  by  the  American  Institute 
for  this  purpose  reads: 

"In  consideration  of  an  additional   premium  of percent  (such 

premium  being  subject  to  revision  from  day  to  day)  it  is  agreed  that 
this  policy  shall  also  cover  destruction  of  the  property  insured  or 
damage  done  to  it  by  strikers,  locked-out  workmen,  or  persons  taking 
part  in  labor  disturbances  or  riots  or  civil  commotions,  but  warranted 
free  of  claim  for  loss,  damage  or  expense  arising  from  deterioration, 
loss  of  market  or  delay,  or  from  extra  handling  or  storage." 

Modifying  Clauses.^ — Much  of  an  underwriter's  time  is  con- 
sumed in  preparing  and  inserting  in  policies  clauses  restricting 
or  enlarging  the  protection  afforded  by  the  basic  form  of  policy, 
but  the  contract  as  originally  worded  has  stood  the  test  of  time 
and  offers  a  full  measure  of  protection  against  the  perils  to  which 
jiroperty  in  transit  over  water  routes  is  exposed. 


CHAPTER  9 

THE  POLICY  (Concluded).     SUE  AND  LABOR  CLAUSE 

Sue  and  Labor  Clause. — The  "Sue  and  Labor"  clause  imme- 
diately follows  the  enumeration  of  the  insured  perils,  and  is 
found  in  all  Marine  Insm-ance  contracts.  When  the  words  were 
first  inserted  in  policies  is  not  known,  but  a  clause  appears  in  the 
"Tiger"  policy  dated  1613  which  is  of  similar  import.  The 
latter  part  of  the  clause,  the  "waiver,"  is  however  of  later 
origin  and  may  have  been  introduced  in  part  at  least  to  make  clear 
the  privilege  of  the  underwriter  himself  to  step  in  and  protect  the 
insured  property.     The  "Sue  and  Labor"  clause  reads: 

"And  in  case  of  any  loss  or  misfortune,  it  shall  be  lawful  and  necessary 

to  and  for  the  assured, factors,  servants  and  assigns,  to  sue, 

labor  and  travel  for,  in  and  about  the  defense,  safeguard  and  recovery 
of  the  said  goods  and  merchandises,  or  any  part  thereof,  without  preju- 
dice to  this  insurance;  nor  shall  the  acts  of  the  insured  or  insurers,  in 
recovering,  saving  and  preserving  the  property  insured,  in  case  of 
disaster,  be  considered  a  waiver  or  an  acceptance  of  an  abandonment; 
to  the  charges  whereof,  the  said  Insurance  Company  will  contribute 
according  to  the  rate  and  quantity  of  the  sum  herein  insured    .    .    .    ." 

Purpose  of  Sue  and  Labor  Clause. — In  the  early  days  of 
overseas  commerce  voyages  were  of  long  duration  and  the  means 
of  communication  between  the  various  ports  of  the  known  world 
were  slow  and  unrehable,  so  that  it  became  necessary  for  the 
assured  and  his  underwriter  to  agree  that  in  the  event  of  mis- 
fortune overtaking  the  venture,  it  should  be  the  duty  of  the 
assured,  who  in  the  early  days  either  accompanied  the  ship 
or  the  cargo  himseK,  or  sent  as  his  representative  an  agent 
known  as  the  supercargo — to  use  every  means  within  his  power 
to  protect  the  property  and  save  it  from  further  damage  after  loss 
had  occurred.  He  was  authorized  to  incur  expenses  for  this 
purpose  and  the  measure  of  his  duty  was  the  care  a  prudent 
uninsured  owner  would  exercise  in  regard  to  his  property.     The 

155 


i:.(')  .u.i/.'/A/.'  i.\sii:.\.\cE 

asaurcMl  aiid  I  lie  iiiiiliiwrilcr  also  a^icc  in  ihis  clausi!  (lial  their 
IcRal  ixtsilion  wilh  rcspecl  to  loss  rccoverablo  under  the  policy 
will  in  no  way  he  alTeeted  hy  any  acts  which  either  may  perform 
toward  the  safeguard  and  recovery  of  the  imperilled  goods  or 
shij).  It  will  be  o])served  that  this  clause  becomes  operative 
only  after  loss  or  misfortune  has  occurred  and  is  not  merely  a 
statement  of  the  duty  with  which  the  law  would  naturally  charge 
an  assured,  but  is  an  affirmative  agreement  that  it  shall  be  neces- 
sary for  the  assured  to  perform  the  duty  of  saving  and  preserving 
the  property. 

Applies  to  Specific  Property  Insured. — The  "Sue  and  Labor" 
clause  is  strictly  limited  in  its  application  to  the  specific  property 
or  interest  to  which  the  poUcy  relates  and  to  the  expenses  incurred 
solely  in  relation  to  such  property  or  interest.  Efforts  may  be 
put  forth  and  expenses  incurred  which  in  a  measure  benefit  the 
insured  interest,  but  are  not  of  exclusive  value  to  this  interest, 
since  in  their  nature  they  are  common  benefits  and  thus  more  in 
the  nature  of  general  average  charges.  Such  efforts  and  expendi- 
tures do  not  come  within  the  meaning  of  the  sue  and  labor  clause 
and  the  underwriter  assumes  no  direct  responsibility  for  them. 

Assured  Must  Enforce  His  Rights  Against  Third  Parties. — The 
original  purpose  of  the  "Sue  and  Labor"  clause  has  become  more 
or  less  obsolete  owing  to  the  present  rapid  means  of  communica- 
tion between  different  parts  of  the  world  because  of  the  submar- 
ine cable  and  the  wu'eless  telegraph,  it  now  being  customary  for 
the  underwriter  to  give  specific  instructions  as  to  salvage  meas- 
ures to  be  undertaken  and  as  to  expenses  to  be  incurred.  Never- 
theless the  clause  is  of  vital  importance  at  the  present  time. 
Many  losses  which  overtake  property,  especially  cargo,  are  due 
to  the  neghgence  or  breach  of  duty  on  the  part  of  some  third 
party.  The  enforcement  of  claims  against  such  negligent  per- 
sons and  the  collection  of  damages  for  the  injured  property  are  in 
many  cases  troublesome,  and  the  assured  is  inclined  to  ignore 
his  legal  remedies  and  to  fall  back  on  the  protection  of  his  insui- 
ance  policies.  The  underwriter  has  no  direct  recourse  against 
these  third  parties,  but  by  invoking  the  requirements  of  the  "Sue 
and  Labor"  clause,  he  is  enabled  to  hold  the  assured  to  his  duty 
of  taking  the  necessary  measures  to  protect  and  enforce  his  legal 
rights  with  respect  to  the  damaged  property. 


THE  POLICY.     SUE  AND  LABOR  CLAUSE  157 

The  Premium. — The  Sue  and  Labor  clause  is  followed  by  the 
words,   "having  been  paid  the  consideration  for  this  insurance 

by  the  assured  or assigns,  at  and  after  the  rate  of 

"  The  premium  furnishes  the  valid  considera- 
tion without  which  the  policj^  would  not  be  an  enforceable  con- 
tract, but  the  wording  as  given  in  the  policy  form  must  not  be 
construed  as  a  confession  on  the  part  of  the  underwriter  that  the 
premium  has  been  paid  by  the  assured.  It  is  rather  a  condition 
upon  the  fulfillment  of  which  the  underwriter  will  carry  out  the 
agreements  to  which  he  has  obligated  himself.  It  is  interesting 
to  ol)serve  in  this  connection  that  the  Lloj^d's  form  of  policy 
reads:  "Confessing  ourselves  paid  the  consideration  due  unto 

us  for  this  assurance  by  the  assured,  at  and  after  the  rate  of " 

Even  this  has  been  held  to  ])e  only  prima  facie  evidence  of 
payment  and  the  question  whether  or  not  the  payment  has 
actually  been  made  can  be  opened  up  in  a  court  of  law  and  the 
facts  determined. 

Competition  Affects  Rates. — No  part  of  the  policy  is  of  more 
interest  to  the  underwriter  than  is  the  rate  of  premium.  Upon 
the  proper  determination  of  this  rate  depends  his  success  or  fail- 
ure. Rates  too  high  drive  business  to  others,  rates  too  low  invite 
failure.  The  question  of  premium  is  much  more  vital  to  the 
underwriter  than  it  is  to  the  assured,  for  the  latter  should  be 
interested  primarily  in  the  security  of  the  insurance  company 
and  secondarily  in  the  rate  of  the  premium.  It  is  axiomatic  in 
insurance  that  the  best  is  in  the  long  run  the  cheapest.  Rates 
are,  as  already  indicated,  based  on  the  law  of  averages  and  tested 
by  the  experience  of  a  period  of  years.  The  law  of  supply  and 
demand,  or  in  other  words  the  presence  or  absence  of  competi- 
tion, as  in  other  lines  of  commercial  activity  has  an  important 
bearing  on  the  cost  of  insurance. 

Premium  Charged  on  Amount  Insured. — The  amount  of 
premium  appears  in  the  margin  of  the  policy  and  is  determined 
by  multiplying  the  sum  insured  by  the  rate  of  premium.  The 
rate  of  premium  is  expressed  ordinarily  as  so  much  percent,  that 
is,  one  percent  indicates  that  the  cost  of  the  insurance  is  one 
dollar  for  each  one  hundred  dollars  insured,  one  half  percent 
indicates  that  fifty  cents  is  the  cost  of  each  one  hundred  dollars 
of  insurance.     The  amount  insured  in  a  special  policj^  is  deter- 


158  MM^fXK  INSURANCE 

mined  by  agreement  at  the  time  the  risk  is  insured.     Under  an 

()j)(Mi  policy  tliis  amount  is  calculated  by  applyinp;  the  basis  of 
valuation  to  the  invoice  or  quantity  insured,  depending  upon 
whether  the  invoice,  or  a  unit  of  measure  as  the  pound,  ton, 
or  barrel  is  specified  by  the  floating  contract  as  the  basic  measure 
of  value.  Of  course,  under  a  floating  policy  the  amount  insured 
on  any  one  risk  cannot,  in  the  absence  of  special  agreement,  ex- 
ceed the  limit  of  liability  expressed  in  the  contract. 

Rates  of  Premium  Used  in  Great  Britain. — It  is  interesting 
to  observe  in  this  connection  that  the  method  of  quoting  rates  in 
Great  Britain,  while  similar  to  the  American  system  in  principle, 
is  different  in  expression.  In  Great  Britain  one  hundred  pounds 
sterling  is  the  basic  unit  of  insurance,  so  that  we  find  rates  ex- 
pressed as  one  pound  percent,  two  pounds  percent,  etc.,  indi- 
cating that  the  cost  of  insurance  per  hundred  pounds  sterling 
is  respectively  one  pound  and  two  pounds.  When  the  rate  is 
less  than  one  pound  percent,  a  different  set  of  symbols  is  used. 
As  there  are  twenty  shillings  in  a  pound  sterling  and  twelve 
pence  in  the  shilling,  small  rates  are  expressed  as  so  many  shillings 
or  pence  percent.  For  instance  a  rate  of  one-twentieth  of  one 
percent  in  an  American  policy  would  be  expressed  in  the  English 
form  as  one  shilling  percent,  while  a  rate  of  one-sixteenth  per- 
cent or  six  and  one-fourth  cents  per  hundred  dollars,  would  appear 
in  the  Engli.sh  policy  as  one  shilling  three  pence  percent  or  ^^ 
percent  as  it  is  usually  written.  This  method  of  rating  is  very 
confusing  at  first,  but  if  the  relative  values  of  the  pound  sterling, 
shilling  and  pence  are  kept  in  mind,  and  the  fact  that  the  unit 
of  insurance  is  one  hundred  pounds  sterling  this  confusion  of 
thought  will  soon  disappear  and  the  English  rates  will  be  as 
readily  understood  as  are  the  American. 

Return  Premium. — Closely  associated  with  the  subject  of 
premium  is  the  question  of  return  premium.  It  has  been  held 
that  there  can  be  no  return  premium  after  a  risk  has  once  at- 
tached, unless  it  can  be  shown  that  the  risk  insured  is  divisible 
and  that  the  rate  as  quoted  is  also  divisible — that  is,  that  a 
definite  part  of  the  rate  quoted  is  to  apply  to  each  portion  of  the 
risk  insured.  The  reason  for  permitting  an  underwriter  to 
retain  full  premium  after  the  risk  has  once  attached,  even  though 
only  a  portion  of  the  voyage  is  accomplished  may  be  best  ex- 


THE  POLICY.     SUE  AND  LABOR.  CLAUSE  159 

plained  by  considering  the  case  of  an  annual  hull  insurance.  It 
has  been  held  by  the  courts  that  the  rate  charged  for  such  insur- 
ance is  an  annual  rate,  not  based  on  so  much  rate  for  each  day's 
risk  or  each  month's  risk,  but  an  indivisible  charge  adequate 
for  the  year's  risk.  The  courts,  therefore,  have  held  that  as 
they  cannot  determine  justly  what  portion  of  the  rate  should 
apply  to  the  part  of  the  risk  actually  incurred  in  case  the  vessel 
is  destroyed  during  the  insured  period,  the  underwriter  is  entitled 
to  retain  the  whole  premium.  That  this  reasoning  is  sound  will 
be  apparent  when  it  is  considered  that  under  an  annual  policy, 
covering  a  vessel  which  is  operating  over  a  route  subject  to  sea- 
sonal hazards,  the  major  part  of  the  total  hazards  incurred 
during  the  policy  term,  may  be  encountered  in  three  months, 
while  during  the  remaining  nine  months  the  vessel  is  operating 
over  comparatively  safe  waters.  To  determine  how  much  of 
an  annual  rate  applied  to  any  portion  of  the  annual  period  would 
be  merely  an  estimate,  the  underwriter  having  named  an  average 
rate  for  the  entire  year.  The  same  reasoning  is  applied  to  other 
forms  of  policies.  It  is  upon  this  theory  that  return  premiums 
are  not  allowed  when  the  insured  subject  is  destroyed  during  the 
policy  term  by  a  peril  not  insured  against.  Thus  in  the  case  of 
an  annual  marine  policy  on  a  hull  no  return  premium  is  allowed 
if  the  insured  vessel  is  destroyed  by  a  war  peril.  To  avoid  this 
rule  of  law  specific  provisions  for  the  return  of  premium  under 
certain  circumstances  are  found  in  policies,  but  these  clauses 
will  be  considered  in  the  special  discussion  of  cargo  and  hull 
insurance. 

Proofs  and  Payment  of  Loss. — The  next  subject  referred  to  in 
the  policy  is  that  of  losses,  the  form  reading, 

"And  in  case  of  loss,  such  loss  to  be  paid  in  thirty  days  after  proof  of 

loss,  and  proof  of  interest  in  the  said (the  subject  matter  of  the 

insurance)  (the  amount  of  the  Note  given  for  the  premium, 

if  unpaid,  being  first  deducted),  but  no  partial  loss  or  particular  average 
shal  in  any  case  be  paid,  unless  amounting  to  five  percent." 

Two  requirements  are  thus  imposed  upon  the  claimant  before 
there  is  any  obligation  on  the  part  of  the  underwriter  to  make 
settlement  of  loss.  First  the  claimant  must  furnish  proof  of  loss 
and  second  he  must  prove  an  interest  in  the  insured  subject. 


ICO  MARINE  INSURANCE 

'I'lie  usual  foiin  of  i)r()()f  to  ostablisli  Dw.  first  point  is  the  protest 
of  the  master  of  the  vessel.  This  docuiuent  is  in  aflidavit 
form,  in  which  the  master  sets  forth  before  a  notaiy  or  other 
person  commissioned  to  administer  oaths,  the  incidents  of  the 
voyaj^o,  laying  special  stress  on  particular  perils  encountered 
which  would  probably  result  in  damage  to  the  vc-sel  and  its 
cargo.  This  protest  is  usually  made  in  short  form  immediately 
on  arrival  at  the  first  port  after  disaster  has  occurred,  the  protest, 
if  necessary,  being  "extended  "  as  it  is  called,  later  on  when  a  more 
detailed  description  of  the  events  occurring  at  the  time  of  the 
casualty  is  given.  The  protest  receives  its  name  from  the  fact 
that  in  the  document  the  master  protests  that  whatever  damage 
may  have  been  sustained,  happened  through  no  fault  or  breach 
of  duty  on  his  part.  The  log  of  the  vessel  may  also  be  examined 
to  establish  the  facts  in  regard  to  the  cause  of  loss. 

Proofs  of  Interest — Proof  of  interest  is  ordinarily  made  by 
offei'ing  to  the  underwriter  the  invoice  and  the  bill  of  lading,  the 
former  docmnent  determining  the  basic  value  of  the  commodity, 
the  latter  proving  that  the  goods  were  actually  on  board  the 
vessel  which  has  been  overtaken  by  disaster.  If  a  certificate  of 
insurance  has  been  issued  this  document  is  offered  as  a  proof 
of  insurance,  or  if  a  certificate  has  not  been  issued  the  policy  itself 
is  presented  to  the  underwriter  in  evidence.  Other  documents 
may  also  be  required.  Thus  in  the  case  of  hull  insurance,  the 
certificate  of  enrollment  may  be  presented  to  prove  by  a  govern- 
mental document,  the  ownership  of  the  vessel,  or  in  the  case  of 
freight  insurance  the  freight  list  or  the  charter  party  may  be 
offered  to  prove  the  amount  of  freight  at  risk. 

Adjustment  of  Loss. — Having  presented  these  proofs  of  loss 
and  proofs  of  interest  in  proper  form,  the  loss,  if  a  clahn  under  the 
policy,  is  due  and  payable  thirty  days  after  such  presentation. 
Whether  or  not  such  loss  is  a  claim  under  the  policy  is  determined 
by  the  underwriter's  adjustment,  the  method  of  preparing  which 
will  be  considered  in  the  discussion  of  losses.  This  adjustment 
may  l)e  made  by  the  unckn'writer  himself  or  if  loss  happens  at  a 
distant  place,  the  documents  may  be  presented  to  the  under- 
writers' agent  who  may  make  the  adjustment.  Sometimes 
the  agent  will  give  merely  a  certificate  showing  the  apparent 
cause  and  extent  of  the  damage.     This  document  is  attached 


THE  POLICY.     SUE  AND  LABOR  CLAUSE  IGl 

to  the  other  proofs  of  loss  and  the  claim  is  sent  to  the  under- 
writer for  adjustment.  Whether  or  not  the  adjustment  will 
show  a  valid  claim  under  the  policy  depends  primarily  on  two 
facts.  Fiikt,  was  the  proxunate  cause  of  the  damage  or  loss 
suffered  one  of  the  perils  insured  against,  and  second  does  the 
amount  of  the  loss  equal  or  exceed  five  percent.  If  both  these 
facts  cannot  be  established  there  is  no  claim  under  a  policy  issued 
in  the  form  under  consideration.  If  these  facts  are  both  estab- 
lishetl,  then  if  the  premium  is  unpaid  or  if  the  note  given  for  it 
is  unpaid  such  premium  will  be  deducted  from  the  amount  of  the 
loss  and  the  balance  if  any  will  be  due  and  payable  thirty  days 
from  the  day  complete  proofs  were  presented  to  the  underwriter. 

Average  Clauses.  The  Franchise. — The  words  in  the  loss 
clause  reading,  "unless  amounting  to  five  percent"  open  up  one 
of  the  most  interesting  and  important  questions  in  the  realm  of 
marine  insurance.  The  fixing  of  the  percentage  of  average  or 
loss,  sometimes  called  the  franchise,  reciuires  a  considerable 
degree  of  skill  and  an  intimate  knowledge  of  the  intrinsic  qualities 
of  propert}^  to  be  insured.  Five  percent  in  most  American 
policies  or  three  percent  in  the  English  form  is  fixed  as  the 
general  minimum  damage  which  must  be  incurred  to  permit  a 
valid  claim  under  the  policy,  but  this  percentage  having  been 
reached,  the  underwriter  assumes  liability  for  all  the  damage 
suffered  through  a  peril  insured  against. 

Deductible  Average  Clauses. — It  may  be,  however,  that  the 
average  clause  is  so  worded  that  the  minimum  percentage  or 
amount  when  reached  is  not  allowed  as  a  claim,  but  is  deducted 
from  the  total  amount  of  the  claim,  the  excess  over  and  above 
what  is  known  as  the  deductible  franchise  being  paid.  These 
deductible  average  clauses  are  worded  in  a  variety  of  ways,  such 

as:  "Subject  to  a  deductible  average  of percent  or  $ " 

or  "Free  of  particular  average  under  percent,  which  is 

deductible."  Deductible  average  clauses  naturally  result  in 
lower  rates  as  a  greater  measure  of  responsibilit}^  remains  with 
the  assured,  than  is  the  case  with  the  ordinary  form  of  average 
clause. 

Purpose  of  Average  Clauses. — The  reasons  for  inserting  ave- 
rage clauses  in  policies  are  in  the  main  twofold.  The  principal 
reason  is  to  relieve  the  underwriter  of  the  inevitable  losses  to 


I(i2  MARIXK  INSURANCE 

which  ccrtiiin  property  from  its  very  nature  or  luodc!  of  shipment 
is  subject,  thus  preventing  a  multiplicity  of  petty  claims.  These 
clauses  also  rcliev'e  underwriters  from  the  annoyance  and  expense 
of  adjusting  petty  claims,  which  while  fortuitous  in  their  char- 
acter are  nevertheless  trifling  in  amount.  The  elimination 
of  these  claims  results  in  a  net  saving  to  the  assured,  as  the 
increased  cost  of  insurance  necessary  to  provide  for  the  expense 
of  making  these  adjustments  would  far  exceed  the  amount  of 
the  losses  themselves.  This  will  be  evident  when  consideration 
is  given  to  the  files  of  documents  which  transportation  companies 
have  in  connection  with  some  petty  claims,  the  postage  alone  on 
which  is  often  many  times  the  amount  of  the  claim  itself.  When 
to  this  expense  is  added  the  cost  of  paper,  notary  fees,  and  the 
salaries  of  those  who  are  charged  with  the  adjustment  of  the 
losses,  the  economic  advantage  of  eliminating  petty  claims  in 
marine  insurance  will  be  apparent. 

Average  Clauses  Reduce  Cost  of  Insurance. — The  second 
reason  for  inserting  average  clauses  is  to  reduce  the  cost  of  in- 
surance. An  underwriter  may  be  willing  to  grant  a  minimum 
average  of  say  five  percent  on  a  certain  commodity,  but  the  cost 
of  such  insurance  from  the  standpoint  of  the  merchant  is  pro- 
hibitive. He  accordingly  is  oftentimes  willing  to  assume  a 
greater  percentage  of  partial  loss,  in  order  to  obtain  a  lower  rate 
which  will  enable  him  to  carry  out  his  contract  without  financial 
loss.  Or  it  may  be  that  the  merchant  from  his  intimate  knowl- 
edge of  the  commodity  and  its  mode  of  shipment  is  confident 
that  it  will  result  in  a  net  saving  to  him  to  pay  a  reduced  rate 
for  insurance  and  to  assume  the  liability  for  partial  losses.  The 
method  used  to  amend  policies  so  as  to  relieve  underwriters 
of  a  measure  of  their  customary  liability  is  to  insert  in  the  con- 
tract an  average  clause  which  modifies  or  overrides  the  average 
clause  in  the  printed  form.  Such  clauses  may  contain  a  fran- 
chise as  high  as  ten  percent,  tw^enty  percent  or  even  fifty 
percent,  or  may  be  deductible  in  their  form,  or  may  be  so  worded 
as  to  eliminate  all  claims  unless  a  definite  named  casualty  occurs, 
as  in  the  case  of  the  common  F.P.A.A.C.  (free  of  particular 
average  American  conditions)  clause,  as  it  is  known,  reading, 
"Free  of  particular  average  unless  caused  by  stranding,  sinking, 
burning,  or  collision  with  another  vessel." 


THE  POLICY.     SUE  AND  LABOR  CLAUSE  103 

Double  Insurance. — The  next  section  of  the  printed  form  deals 
with  the  subject  of  prior,  simultaneous  and  subsequent  insurance. 
Herein  is  found  one  of  the  principal  differences  between  American 
and  British  insurance  practice.     The  clause  in  question  reads: 

"Provided  always,  and  it  is  hereby  further  agreed,  tliat  if  the  said 
assured  shall  have  made  any  other  assurance  upon  the  premises  afore- 
said, prior  in  day  of  date  to  this  policy,  then  the  said In- 
surance Company  shall  be  answerable  only  for  so  much  as  the  amount 
of   such   prior  insurance  may  be  deficient  toward  fully  covering  the 

premises  hereby  assured;  and  the  said Insurance  Company 

shall  return  the  premium  upon  so  much  of  the  sum  by  them  assured,  as 
they  shall  be  by  such  prior  assurance  exonerated  from.  And  in  case  of 
any  insurance  upon  the  said  premises,  subsequent  in  day  of  date  to 

this  policy,  the  said Insurance  Company  shall  nevertheless 

be  answerable  for  the  full  extent  of  the  sum  by  them  subscribed  hereto, 
without  right  to  claim  contribution  from  such  subsequent  assurers, 
and  shall  accordingly  be  entitled  to  retain  the  premium  by  them  re- 
ceived, in  the  same  manner  as  if  no  such  subsequent  assurance  had  been 
made.  Other  insurance  upon  the  premises  aforesaid,  of  date  the  same 
day  as  this  policy,  shall  be  deemed  simultaneous  herewith;  and  the 

said •.  .  Insurance  Company  shall  not  be  liable  for  more  than  a 

rateable  contribution  in  the  proportion  of  the  sum  by  them  insured 
to  the  aggregate  of  such  simultaneous  insurance." 

Little  need  be  said  in  explanation  of  this  portion  of  the  policy. 
The  American  theory  of  double  insurance  as  herein  set  forth  is 
that  if  insurance  has  been  effected  prior  in  day  of  date  to  the 
policy  in  question  the  underwriter  shall  be  relieved  of  all  liability 
for  loss  except  in  so  far  as  the  prior  policy  is  deficient  in  amount, 
not  fully  protecting  the  property  insured.  The  insurance  com- 
pany agrees  to  return  premium  on  so  much  of  the  amount  as  is 
overinsurance.  If  there  are  two  or  more  policies  on  the  same 
property  and  aggregating  in  amount  more  than  the  insured 
value  of  it,  simultaneous  in  day  of  date,  then  the  various 
underwriters  become  co-insurers,  each  agreeing  to  be  respon- 
sible for  his  pro  rata  proportion  of  the  loss  and  each  retaining 
his  pro  rata  share  of  the  premium.  If  the  policy  in  question, 
however,  is  prior  in  date  to  any  other  policy  then  the  under- 
writer agrees  to  assume  full  responsibility  for  loss  to  the  amount 
of  his  policy,  and  is  entitled  to  retain  the  full  premium  charged. 


U\4  MAIilNE  INSURANCE 

Theory  of  Double   Insurance  Dififerent  in  Great  Britain. — 

This  principle  of  (louble  iiisunince  i.s  <iuil(!  dilTerent  from  the 
practice  in  (^ireat  Britain  where  the  priority  of  the  date  of  a 
l)olic3'  has  no  control  over  its  validity.  An  assured  may  be  very 
much  overinsured,  in  fact  after  having  placed  the  risk  in  full 
with  one  underwriter,  he  may  ajiain  insure  it  with  a  second  under- 
writer, each  of  whom  is  liable  in  the  event  of  loss  for  the  entire 
amount  of  his  policy.  The  assured,  however,  cannot  collect  his 
loss  twice  and  the  two  underwriters  stand  in  the  position  of 
sureties  one  for  the  other,  lie  from  whom  the  loss  has  been  col- 
lected having  a  valid  claim  upon  tlie  otiier  underwriter  for  a 
rateable  contribution  to  the  loss.  The  I'^nfilish  doctrine  is  set 
forth  in  the  following  words  in  Section  80  of  the  Marine  Insurance 
Act- 
so.  (1)  Wliere  the  assured  is  overinsured  by  double  insurance,  each 
insurer  is  bound,  as  between  liiniself  and  the  other  insurers,  to  con- 
tribute rateably  to  the  loss  in  proportion  to  the  amount  for  which  he  is 
liable  under  his  contract. 

(2)  If  any  insurer  pays  more  than  his  proportion  of  the  loss,  he  is 
entitled  to  maintain  an  action  for  contribution  against  the  other  in- 
surers, and  is  entitled  to  the  like  remedies  as  a  surety  who  has  paid  more 
than  his  proportion  of  the  debt. 

Under  Insurance. — Closely  analogous  to  the  subject  of  double 
insurance  or  over  insurance  is  that  of  under  insurance.  Here  the 
rule  in  America  and  England  is  the  same  and  is  succinctly  stated 
in  section  81  of  the  Insurance  Act  in  the  following  words: 

81.  Where  the  assured  is  insured  for  an  amount  less  tlian  the  insurable 
value  or,  in  the  case  of  a  valued  policy,  for  an  amount  less  tlian  the 
policy  valuation,  he  is  deemed  to  be  his  own  insurer  in  respect  of  the 
uninsured  balance. 

This  rule  is  peculiar  to  marine  insurance.  The  insurer  in  the 
case  of  fire  insurance  where  the  customary  form  of  unvalued 
policy  is  used,  is  liable  for  the  entire  loss  not  exceeding  the  amount 
of  his  policy  or  not  exceeding  the  real  value  of  the  insured  sub- 
ject whichever  amount  is  the  smaller.  Fire  insurance  has  in 
certain  cases  adopted  marine  insurance  practice,  inserting  in 
policies  the  so-called  co-insurance  or  average  clauses,  by  which 
under  certain  conditions  the  assured  becomes  a  co-insurer  with 


THE  POLICY.     SUE  AND  LABOR  CLAUSE  165 

his  underwriter.  Tiie  motive  for  using  such  clauses  in  fire  poli- 
cies is  primarily  to  produce  premium,  in  that  to  escape  the  effect 
of  the  co-insurance  clause  the  assured  must  carry  insurance  equal 
in  amount  to  a  certain  fixed  percentage  of  the  value  of  the  in- 
sured property.  The  higher  this  percentage  is  the  lower  the  rate 
of  insurance.  The  principle  of  co-insurance  in  marine  under- 
writing, however,  is  fundamental  and  applies  in  all  cases. 

Insurance  on  Same  Property  Covering  Different  Risks. — Care- 
ful distinction  should  be  made  between  double  insurance  and  in- 
surance under  two  or  more  policies,  each  one  of  which,  while 
relating  to  the  same  property,  covers  different  risks  to  which  that 
property  is  subject.  Thus  in  the  case  of  three  policies,  the  first 
covering  total  loss  and  liability  under  the  Free  of  Average  English 
conditions  clause,  the  second  other  partial  losses  or  "  difference  in 
conditions"  as  it  is  known  and  the  third,  war  risks,  each  under- 
writer is  responsible  for  the  particular  losses  against  which  he 
provided  insurance. 

Carrier's  Liability. — At  this  point  there  is  inserted  in  many  of 
the  printed  forms  in  use  by  the  several  companies,  clauses  worded 
in  various  ways  the  general  intent  of  which  is  to  make  the  policy 
null  and  void  in  the  event  of  there  being  other  insurance  on  the 
property,  furnished  by  a  transportation  company  under  its  bill 
of  lading,  or  otherwise,  except  in  so  far  as  such  carriers'  insurance 
may  be  deficient  to  cover  the  loss  incurred.  Similar  provision 
is  made  in  regard  to  fire  insurance  prior  to  loading  on  or  after  dis- 
charge from  the  vessel.  The  purpose  of  these  clauses  will  be 
considered  when  the  question  of  losses  is  discussed. 

Illicit  or  Prohibited  Trade. — Insurance  companies,  in  order  to 
protect  themselves  from  unwittingly  assuming  liability  for  losses 
caused  by  perils  against  which  they  do  not  wish  to  give  protection, 
have  inserted  in  the  printed  policy  certain  modifying  clauses  which 
except  them  from  such  liability.     The  first  of  these  clauses  reads: 

"  It  is  also  agreed,  that  the  property  be  warranted  by  the  assured  free 
from  any  charge,  damage  or  loss,  which  may  arise  in  consequence  of  a 
seizure  or  detention,  for,  or  on  account  of  any  illicit  or  prohibitedtrade, 
or  any  trade  in  articles  contraband  of  wo.r." 

It  will  be  noted  that  this  clause  refers  only  to  losses  occasioned 
by  seizure  or  detention  due  to  illicit  or  prohibited  trade,  or  to 


1(10  MMa.M:'   l.\SI  UANCE 

trade  in  articles  contrabainl  of  \v;ir  ami  does  not  refer  to  seizure 
or  detention  in  general.     It  would  also  appear  that  there  must 

be  read  into  this  clause  "loss which  may  arise 

for,   or    on    account  of    any trade  in   the  goods  hereby 

insured,"  otherwise  an  innocent  shipper  might  be  prejudiced  by 
the  seizure  and  detention  of  his  goods  merely  because  they 
happened  to  be  in  the  same  vessel  with  other  goods  liable  for 
seizure  or  detention  on  account  of  illicit,  prohibited  or  con- 
traband trade.  Trading  in  contraband  presupposes  a  state  of 
war,  but  an  illicit  or  probibited  trade  may  exist  in  time  of  peace. 
Such  illicit  or  prohibited  trade  refers  particularly  to  traffic  which 
is  illegal  under  the  laws  or  regulations  of  foreign  ports.  While 
it  is  legal  to  insure  articles  of  trade  in  violation  of  foreign  ordi- 
nances, unless  such  ordinances  by  treaty  are  respected  by  the 
country  wherein  the  policy  is  issued,  it  is  illegal  to  insure  contrary 
to  the  laws  of  the  country  or  state  wherein  the  contract  of  insur- 
ance is  made. 

Abandonment. — The  second  of  the  modifying  clauses  reads; 

"Warranted  not  to  abandon  in  case  of  capture,  seizure,  or  detention, 
until  after  condemnation  of  the  property  insured;  nor  until  ninety  days 
after  notice  of  said  condemnation  is  given  to  this  Company.  Also 
warranted  not  to  abandon  in  case  of  blockade,  and  free  from  any  expense 
in  consequence  of  capture,  seizure,  detention  or  blockade,  but  in  the 
event  of  blockade,  to  be  at  liberty  to  proceed  to  an  open  port  and  there 
end  the  voyage." 

The  subject  of  abandonment  is  one  which  may  be  considered 
more  logically  in  connection  with  the  discussion  of  total  losses. 
It  will  be  sufficient  at  the  present  point  to  state  that  by  an  aban- 
donment the  assured  transfers  to  the  underwriter  his  right,  title 
and  interest  in  whatever  remnant  of  property  may  remain  after 
an  insured  peril  has  occurred.  The  underwriter  receives  the 
property,  if  abandonment  is  accepted,  subject  to  all  liens  and 
encumbrances  which  may  have  attached  to  it,  and  subject  also, 
to  all  benefits  or  claims  against  third  parties  arising  out  of 
ownership  in  sucli  property. 

Purpose  of  Abandonment  Clause. — The  primary  purpose  of 
the  present  clause  is  to  make  it  impossible  for  an  assured,  when 
his  vessel  or  cargo  is  taken  by  a  belligerent,  to  avoid  the  obliga- 


THE  POLICY.     SUE  AND  LABOR  CLAUSE  167 

tion  which  he  owes  to  his  underwriter  to  use  all  means  to  obtain 
the  release  of  the  vessel  or  cargo.  He  cannot  consider  that  his 
property  has  become  a  total  loss  and  abandon  it  to  the  under- 
writer. This  is  merely  a  further  illustration  of  the  general 
principle  that  marine  insurance  seeks  to  indemnify  the  assured 
for  actual  losses  suffered,  but  does  not  purpose  to  relieve  the 
assured  of  the  care  which  a  prudent  uninsured  owner  would 
exercise  with  respect  to  his  property  under  similar  circumstances. 
Even  if  condemned  under  legal  proceedings  the  assured  agrees  in 
this  clause,  not  to  abandon  until  the  expiration  of  ninety  days, 
from  the  time  of  notice  of  such  condemnation  is  given  to  his 
underwriter.  This  precaution  is  taken  in  order  that  appeal 
may  be  made  from  the  judgment  of  condemnation  and  that  addi- 
tional efforts  may  be  made  to  effect  the  release  of  the  insured 
property. 

Liability  for  Expenses. — The  underwriter  also  expressly  war- 
rants that  he  will  not  be  liable  for  any  expense  that  may  be 
occasioned  to  the  assured  in  consequence  of  capture,  seizure, 
detention  or  blockade.  Such  expenses  remain  at  the  risk  of  the 
assured,  notwithstanding  the  fact  that  the  policy  covers  the  peril 
with  which  such  expenses  are  associated.  The  mere  fact  of 
capture,  seizure,  detention  or  blockade  does  not  imply  that  the 
property  is  lost.  The  subject  of  insurance  is  lost  and  the  loss  is 
recoverable  under  an  insurance  policy  only  when  the  property  is 
legally  condemned  and  permanently  taken  from  the  assured. 
Up  to  this  point  the  underwriter  is  only  indirectly  concerned,  in 
that  the  preliminary  seizure  may  result  in  the  condemnation  and 
loss  of  the  property.  Being  thus  interested  it  is  customary  for 
him  to  lend  his  aid  and  give  his  advice  concerning  ways  and 
means  of  obtaining  release  of  the  insured  property  and  thus 
preventing  the  consummation  of  the  loss. 

Liberty  to  Deviate  in  Event  of  Blockade. — In  order  that  the 
policy  may  not  be  voided  by  the  application  of  the  doctrine  of 
deviation,  liberty  is  expressly  granted  for  a  vessel  in  the  event  of 
blockade,  to  proceed  to  an  open  port  and  there  end  the  voyage. 
Here  again  the  way  is  made  clear  to  effect  the  saving  of  imperilled 
property,  by  providing  a  way  of  escape  which  will  in  no  wise 
invalidate  the  insurance.  However,  a  deviation  made  to  escape 
the  peril  of  blockade  must  be  a  reasonable  one,  the  assured  not 


108  MAh'lXK  IXSrRAXCE 

hoinp;  pcniiiltcd  umlcr  cover  of  this  chuiso  to  substitute  an 
cut  ii'cly  lu'W  voyajic. 

The  Attestation  Clause.  -I''ollo\\in«i;  tlicsc  modifying  clauses 
tiiere  appears  in  the  jjrinlcd  foiiii  under  consideration,  the 
attestation  clause  reading:  "In  witness  whereof,  the  President 

or  Vice  President  of  the  said Insurance  Company  hath 

hereunto  subscribed  his  name,  and  the  sum  insured,  and  caused 
the  same  to  be  attested  by  their  Secret arj^  in  New  York,  the 

— ■  day  of one  thousand  nine  hundred  and " 

As  already  indicated,  the  policy  in  which  both  the  assured  and  the 
company  agree  to  perform  certain  obligations,  or  to  refrain  from 
committing  certain  acts,  is  signed  only  bj"  the  authorized  agents 
of  the  Company.  The  assured  by  signing  the  preliminary  appli- 
cati(m  and  l)y  the  acceptance  of  the  formal  contract  as  embodied 
in  the  policy  assents  to  the  obligations  which  the  contract 
imposes  upon  him. 

Memorandum  Clause.— The  signatures  of  the  officers  of  the 
comi)any  do  not  imniediatel}'  follow  the  attestation  clause,  for  we 
find  a  clause  headed  "Memorandum"  w^hich  materially  modifies 
the  contract  terais  and  incidently  gives  the  first  intimation  that 
the  marine  insurance  policy  is  concerned  with  general  average 
losses.  The  Memorandum  clause  was  first  introduced  into 
London  policies  in  1748  and  is  now  in  one  form  or  another  a  part 
of  all  cargo  policies.  Its  consideration  will  be  reserved  for  the 
following  chapter  so  that  it  may  receive  the  attention  which  its 
imj)ortance  deserves. 

Underwriter  Retains  Premium  on  Risk  Unwittingly  Insured 
After  Arrival. — The  last  two  sentences  of  the  policy,  however, 
may  be  considered  at  this  point.  The  first  is  the  complement 
of  the  phrase  "lost  or  not  lost"  and  reads:  "If  the  voyage 
aforesaid  shall  have  begun  and  shall  have  terminated  before 
the  date  of  this  policy,  then  there  shall  be  no  return  of  premium 
on  account  of  such  termination  of  the  voyage."  Here  again 
we  must  read  into  the  contract  modifjdng  words  to  the  effect 
that  the  voyage  has  been  begun  and  ended  "without  the  knowl- 
edge of  either  party."  It  seems  only  fair  that  if  the  underwriter 
assumes  a  risk  on  property  which  at  the  date  of  the  policy  may 
have  ceased  to  exist,  as  he  does  under  the  "lost  or  not  lost" 
clause,  then  he  should  be  entitled  to  retain  premium  on  a  policy 


THE  POLICY.     SUE  AND  LABOR  CLAUSE  169 

innocently  issued  on  a  terminated  risk.  Were  this  not  so,  the 
underwriter  could  be  held  for  a  loss  which  happened  prior  to 
the  date  of  the  policy,  under  the  "lost  or  not  lost"  clause,  but 
would  receive  no  premium  on  a  risk  which  terminated  without 
loss  prior  to  the  date  of  policy. 

Resume. — The  final  sentence  reads:  "In  all  cases  of  return  of 
premium,  in  whole  or  in  part,  one-half  percent  upon  the  sum 
insured,  is  to  be  retained  by  the  assurers."  This  provision 
is  obsolete.  Its  original  purpose  may  have  been  to  afford  the 
insurance  company,  in  the  event  of  cancellation,  some  re- 
muneration for  the  time  and  expense  involved  in  the  issuance  of 
the  policy.  The  absurdity  of  this  clause  in  modern  practice 
will  be  apparent,  when  it  is  considered  that  in  many  cases, 
the  rate  premium  is  considerably  less  than  one-half  of  one  per- 
cent, and  were  the  clause  to  be  enforced  literally,  the  cancella- 
tion of  the  policy  would  result  not  in  the  payment  of  a  return 
premium  to  the  assured,  but  in  the  payment  of  additional 
premium  b}^  the  assured. 

After  entering  the  amount  insured  in  both  figures  and  words 
on  the  last  line  of  the  policy,  the  signatures  are  affixed  and  the 
document  becomes  a  formal  policy  of  marine  insurance.  The 
subjects  which  have  been  considered  in  this  and  the  preceding 
chapters  are  merely  the  customary  clauses  which  are  found 
in  all  cargo  policies.  There  is  no  limit  to  the  modifying  stipula- 
tions and  warranties  which  may  be  added  to  a  policy  to  change 
the  printed  form.  In  fact  in  many  cases  the  modifications 
take  more  space  than  does  the  original  matter.  Added  to  these 
written  variations,  there  are  the  implied  warranties  which  unless 
waived,  apply  to  all  policies.  In  the  following  chapters  consid- 
eration will  be  given  to  these  modifications  as  they  apply  to  poli- 
cies generally  and  to  specific  forms  of  insurance  on  cargo,  hull, 
freight  and  other  insurable  interests. 


THE  MEMORANDUM  CLAUSE.     IMPLIED  AND   EX- 
PRESSED   WARRANTIES.     REPRESENTATION 
AND  CONCEALMENT 

All  Goods  Not  Equally  Susceptible  to  Damage. — It  will  have 
been  observed  that  a  policy  form  which  on  first  reading  seemed 
to  give  protection  against  practically  all  misfortunes  to  which 
property  at  sea  may  be  subjected,  is  b}'  interpretation  more  or 
less  restricted  with  respect  to  the  nature  of  the  casualties  against 
which  it  provides  indemnity,  and  as  to  the  minimum  amount  of 
loss  for  which  responsibility  is  assumed.  Notwithstanding  these 
restrictions,  underwriters  early  discovered  that  while  the  pro- 
tection afforded  might  be  suitable  for  some  subjects  of  insurance, 
with  respect  to  others  it  merely  resulted  in  the  underwriter 
assuming  responsibility  for  losses  which,  although  the  result  of 
insured  perils,  produced  claims  out  of  all  proportion  to  the 
severity  of  the  casualty  suffered.  In  other  words  experience 
demonstrated  that  certain  kinds  of  goods  when  exposed  to  sea 
perils  deteriorate  rapidl}',  causing  unlooked-for  losses  which  it 
was  not  prudent  for  an  underwriter  to  assume.  It  was  often 
difficult  with  such  goods  to  determine  whether  in  the  event  of  a 
minor  casualty,  the  consequent  loss  was  due  to  the  inherent 
qualities  of  the  article  itseK  or  whether  the  deterioration  was 
the  proximate  result  of  the  casualty. 

A  Uniform  Rate  of  Premium  Desirable. — In  the  early  days  of 
marine  insurance,  clauses  were  devised  which  relieved  under- 
writers of  all  partial  loss  on  certain  goods,  and  of  small  partial 
losses  on  other  goods  less  susceptible  to  damage;  the  apparent 
purpose  of  this  being  to  arrive  at  a  basis  of  insurance  which  would 
make  the  liability  under  the  policy  on  all  kinds  of  goods  as 
nearly  equal  as  possible,  permitting  the  charging  of  a  uniform 
rate.  Whether  or  not  this  was  the  primary  purpose  of  these 
clauses,  the  fact  remains  that  it  is  impractical  to  devise  any 
system  of  insurance  which  will  result  in  the  underwriter  assuming 

170 


THE  MEMORANDUM  CLAUSE  171 

the  same  degree  of  risk,  no  matter  what  the  insured  subject 
may  be. 

The  Memorandum  Clause. — It  is  possible  that  the  clauses 
of  this  nature  in  use  in  the  eighteenth  century  were  combined 
in  1748  when  the  first  memorandum  clause  appeared  in  London 
policies.  Today  the  clause  appearing  in  the  Lloyd's  form  is 
comparatively  short,  but  general  in  its  terms,  whereas  in  the 
memorandum  clauses  found  in  American  policies,  a  more  specific 
enumeration  of  commodities  is  found.  Some  of  the  lists  are 
exceedingly  long  and  embrace  most  of  the  common  and  uncom- 
mon articles  of  commerce.  These  lists  are  followed  by  general 
words  intended  to  include  all  other  articles  of  the  same  general 
characteristics  and  susceptibility  to  damage  which  may  by  chance 
have  been  omitted  in  the  specific  enumeration.  The  memo- 
randum clause  appearing  in  the  printed  form  which  was 
considered  in  the  previous  chapters  is  in  the  following  words: 

Meviorandum. — It  is  also  agreed,  that  bar,  bundle,  rod,  hoop  and 
sheet  iron,  wire  of  all  kinds,  tin  plates,  steel,  madder,  sumac,  wicker-ware 
and  willow  (manufactured  or  otherwise),  salt,  grain  of  all  kinds,  tobacco, 
Indian  meal,  fruits  (whether  preserved  or  otherwise),  cheese,  dry  fish, 
hay,  vegetables  and  roots,  rags,  hempen  yarn,  bags,  cotton  bagging, 
and  other  articles  used  for  bags  or  bagging,  pleasure  carriages,  household 
furniture,  skins  and  hides,  musical  instruments,  looking-glasses,  and  all 
other  articles  that  are  perishable  in  their  own  nature,  are  warranted  by 
the  assured  free  from  average,  unless  general;  hemp,  tobacco  stems,  mat- 
ting and  cassia,  except  in  boxes,  free  from  average  under  twenty  per- 
cent unless  general;  and  sugar,  flax,  flax-seed  and  bread,  are  warranted 
by  the  assured  free  from  average  under  seven  percent  unless  general; 
and  coffee  in  bags  or  bulk,  pepper  in  bags  or  bulk,  and  rice,  free  from 
average  under  ten  percent  unless  general. 

Warranted  by  the  insured  free  from  damage  or  injury,  from  dampness, 
change  of  flavor,  or  being  spotted,  discolored,  musty  or  mouldy,  except 
caused  by  actual  contact  of  sea  water  with  the  articles  damaged,  occa- 
sioned by  sea  perils.  In  case  of  partial  loss  by  sea  damage  to  dry  goods, 
cutlery  or  other  hardware,  the  loss  shall  be  ascertained  by  a  separation 
and  sale  of  the  portion  only  of  the  contents  of  the  packages  so  damaged, 
and  not  otherwise;  and  the  same  practice  shall  obtain  as  to  all  other 
merchandise  as  far  as  practicable.  Not  liable  for  leakage  on  molasses 
or  other  liquids,  unless  occasioned  by  stranding  or  collision  with  another 
vessel. 


172  MAR/XE  IXSURANCE 

General  Average  Introduced  into  Marine  Policy. — It  will  he 
noticed  that  some  of  tlic  articles  are  b}'  inference  only  insured 
against  total  loss,  that  is  thoy  are  "free  from  average,"  while 
other  articles  consitlered  less  susceptible  to  damage  are  subject 
to  partial  loss  if  such  partial  loss  amounts  to  twenty,  seven  or 
ten  percent  of  the  insured  value.  But  whatever  may  be  the 
percentage  of  damage  due  to  partial  loss  which  is  necessary  to 
allow  a  claim  under  the  policy,  one  kind  of  loss  is  unrestricted 
and  is  payable  irrespective  of  percentage.  Each  group  of  com- 
modities ends  w'ith  the  words  "unless  general."  This,  the  first 
reference  in  the  polic}^  to  general  average  gives  notice  that 
losses  in  the  nature  of  general  average  will  be  paid  in  full  by  the 
underwriter. 

Excepted  Risks. — The  second  paragraph  of  the  memorandum 
clause  is  more  modern  and  no  words  of  similar  import  appear  in 
the  Lloyd's  form  of  policy.  It  was  discovered  that  certain  com- 
modities because  of  their  nature  readily  absorbed  odors  which 
might  be  given  off  by  the  cargo,  and  in  the  case  of  extremely 
perishable  articles  their  value  in  the  market  was  completely 
destroyed.  Other  goods  would  become  spotted,  discolored, 
musty  or  mouldy  or  might  be  damaged  mereh'  because  of  moist 
atmosphere  in  the  hold.  Then  again  the  vessel  might  leak  and 
damage  certain  cargo,  such  as  hides  or  skins,  which  w^ould  quickly 
begin  to  rot,  and  give  off  offensive  odors  which  would  penetrate 
the  vessel  and  be  absorbed  b}^  other  articles  which  had  not  been 
directly  affected  b}'  the  casualty.  Underwriters  having  been 
held  liable  in  certain  cases  for  such  consequential  loss,  the  clause 
under  discussion  was  inserted  to  restrict  the  liability  of  under- 
writers for  losses  of  this  nature  to  such  as  are  the  direct  result 
of  the  insured  subject  itself  being  in  actual  contact  with  sea 
water,  the  sea  water  obtaining  entrance  to  the  cargo  through  a 
sea  peril. 

The  Separation  of  Damaged  Goods. — Furthermore,  the  under- 
writer requires  that,  in  case  of  damage  to  property'  wdiich  is 
capable  of  being  separated  into  units,  such  segregation  must  be 
made  and  the  assured  must  be  content  with  an  adjustment  of 
the  loss,  in  accordance  with  the  terms  and  conditions  of  the 
policy,  on  the  damaged  portion  onl}'.  Thus  in  the  case  of 
cutlery,  each  piece  of  which   is  ordinarily  wrapped  separatelj' 


THE  MEMORANDUM  CLAV,'<E  173 

and  placed  in  small  packages  which  in  turn  are  combined  in  a 
large  shipping  case,  if  the  case  is  damaged  through  a  peril  in- 
sured against,  the  individual  units  must  be  se])arately  handled, 
the  sound  separated  from  the  damaged  and  claim  made  on  only 
the  pieces  actually  damaged.  The  underwriter  of  course  assumes 
the  expense  of  making  the  separation.  The  same  procedure  is 
required  in  the  case  of  other  articles  which  can  be  treated  in  a 
similar  manner.  The  underwriter  also  provides  in  this  paragraph 
that  there  shall  be  no  liability  on  his  part  for  loss  of  molasses 
or  other  liquids  through  leakage,  unless  such  leakage  is  the  direct 
result  of  stranding  or  of  a  collision  with  another  vessel. 

Insurance  Does  Not  Restore  Property. — It  must  ever  be  re- 
membered, that  the  loss  of  property  is  an  economic  loss  to  the 
world.  Marine  insurance  does  not  make  good  that  loss,  it 
merely  serves  to  distribute  the  shock  caused  by  the  loss.  It 
therefore  is  the  duty  of  the  assured  as  well  as  the  underwriter, 
to  use  every  means  to  preserve  property  from  damage  and  to 
restore  it  when  injured  to  a  state  of  commercial  usefulness,  if 
such  preservation  or  restoration  can  be  accomplished  at  a  cost 
which  will  result  in  a  net  economic  gain.  Too  often  it  is  felt 
that  the  destruction  of  property,  if  insured,  is  of  little  moment  to 
the  assured  or  to  the  public  in  general,  the  fact  being  lost  sight 
of  that  every  destruction  of  property  of  real  value  reduces  by 
that  amount  the  total  wealth  of  the  world.  Compensation 
made  by  an  insurance  company  for  such  loss  does  not  create  new 
wealth  to  offset  the  loss,  it  merely  transfers  from  the  underwriter 
to  the  assured  a  sum  which  has  been  set  aside  from  the  wealth 
of  the  world  to  aid  the  particular  individual  who  has  suffered. 
Thus  the  assured  from  the  point  of  view  of  public  policy  is  bound 
to  take  every  precaution  to  prevent  loss,  and  to  minimize  it  if 
it  does  occur,  and  the  underwriter  is  under  no  less  obligation 
to  insist  that  the  assured  perform  his  duty  in  this  respect.  Many 
assured  have  the  mistaken  notion  that  insurance  relieves  them 
of  any  further  concern  in  regard  to  their  property,  entirely  losing 
sight  of  the  part  which  insurance  plays  in  commercial  life. 

Implied  Warranties, — While  the  printed  and  written  form  of 
policy  sets  forth  the  terms  of  the  contract  between  the  assured 
and  the  underwriter,  this  agreement  is  subject  to  what  are  known 
as  implied  warranties.     These  implied  warranties  are  agreements 

13 


174  ^fAI^'f^■K  IXSURANCE 

iiol  cinhoilii'd  in  (he  Icinis  of  llic  jxilicy,  hut  lead  into  it  bylaw. 
Tluit  is,  tlie  parties  to  the  contract  agree  by  implication  when 
making  the  insurance  that  certain  conditions  exist  and  that 
certain  well-defined  rules  will  be  followed  in  the  conduct  of  the 
voyage.  Tiiese  implied  warranties  are  the  result  of  law  court 
decisions  of  the  preceding  centuries  with  respect  to  marine  in- 
surance policies,  which  decisions  are  in  many  cases  merely  the 
embodiment  into  legal  form  of  the  customs  and  usages  of  mer- 
chants, and  become  just  as  binding  on  the  assured  and  on  the 
underwriter  as  matters  definitely  expressed  in  the  body  of  the 
policy. 

Implied  Warranty  of  Legal  Conduct. — There  is  usually  included 
in  th(>  list  of  implied  warranties  the  agreement  that  the  voyage 
will  be  legally  conducted.  This  is  not  an  implied  warranty  in 
the  strictest  sense  of  the  word,  since  it  is  common  to  all  contracts 
that  the  law  of  the  land  in  which  the  agreement  is  made  will  not 
be  contravened  in  the  carrying  out  of  the  contract  terms.  The 
law  of  the  land  consists  not  only  of  the  domestic  laws  of  the 
country  but  also  includes  international  law  and  agreements  and 
regulations  laid  down  in  treaties  to  which  the  nation  is  a  party. 
It  should  be  noted,  however,  that  commercial  adventures  during 
their  course  may  come  within  the  protection  or  the  power  of  the 
laws  of  foreign  governments,  but  it  is  within  the  rights  of  the 
assured  and  his  underwriter  to  bargain  in  regard  to  a  voyage 
or  with  respect  to  a  shipment  which  may  be  made  in  violation 
of  foreign  edicts,  and  there  is  no  implied  warranty  to  prevent  it. 
This  so-called  warranty  of  legality  differs  from  all  other  implied 
warranties,  in  that  the  parties  cannot  mutually'  agree  to  waive 
the  warranty  and  make  it  of  no  effect.  The  waiver  of  the  im- 
plied warranty  of  legahty  is  against  public  policy  and  will  not  be 
tolerated.  Insurance  which  involves  the  illegal  conduct  of  the 
assured  or  of  the  underwriter  must  not  be  confused  with  insur- 
ance against  the  illegal  conduct  of  third  parties,  as  in  the  case 
of  barratry,  theft,  pirates  or  rovers.  Such  insurance  is,  of  course, 
valid.  » 

Seaworthiness. — The  most  important  of  the  implied  warrant- 
ies is  that  of  seaworthiness.  In  order  that  this  implied  warranty 
may  be  complied  with,  it  is  necessary  that  the  vessel  be  properly 
constructed,  conducted  and  found,  for  the  carrying  of  the  speci- 


THE  MEMORANDUM  CLAUSE  175 

ficd  cargo  insured  on  the  particular  voyage  described.  Nothing 
is  more  difficult  than  to  determine  that  a  vessel  is  unseaworthy 
in  advance  of  its  destruction.  Underwriters'  surveyors  may 
think  that  one  boat  is  unseaworthy,  while  they  may  decide  that 
another  is  seaworthy.  The  first  vessel  may  make  her  passage  in 
safety  while  the  second  may  be  lost.  Such  expressions  of  sea- 
worthiness are  mere  matters  of  opinion,  and  while  underwriters 
to  a  certain  extent  give  weight  to  these  opinions  in  forming  their 
judgment,  nevertheless  they  are  not  conclusive  nor  presumptive 
evidence  of  either  the  seaworthiness  or  unseaworthiness  of  the 
vessel. 

Tests  of  Seaworthiness. — The  question  is  a  deeper  one  than 
any  mere  matter  of  opinion.  Seaworthiness  involves  questions 
which  a  survey  of  the  vessel  may  not  reveal.  The  strength  and 
intrinsic  qualities  of  the  material  used  in  the  construction  of 
the  vessel,  the  fastenings,  the  workmanship,  the  model  of  the 
vessel,  the  engine  equipment,  the  fuel  and  food  supply,  the  com- 
petency and  experience  of  the  master  and  the  crew,  the  suita- 
bility of  the  vessel  at  the  particular  season  of  the  year  for  carry- 
ing the  particular  kind  of  cargo  in  question  on  the  proposed 
voyage  are  some  of  the  many  elements  which  may  be  involved 
in  the  question  of  seaworthiness.  Often  the  best  evidence  of 
unseaworthiness  is  the  fact  that  the  vessel  without  apparent 
external  cause  is  lost.  Seaworthiness  is  a  question  of  fact  which 
in  the  last  analysis  can  be  determined  only  bj^  a  court  of  law. 

No  Fixed  Standard  of  Seaworthiness. — The  standard  by 
which  seaworthiness  is  judged  is  a  changeable  one  and  may  vary 
with  any  particular  vessel  at  different  periods  of  the  same  voyage. 
A  vessel  might  be  perfectly  seaworthy  to  load  and  carry  a  cargo 
while  lying  safely  in  a  sheltered  port.  In  fact  it  might  be  per- 
fectly seaworthy  to  carry  the  cargo  from  a  river  port  at  which  it 
was  loading  down  to  the  open  sea,  but  having  reached  the  open 
sea  be  absolutely  unseaworthy  for  the  remainder  of  the  proposed 
voyage.  There  is  a  different  standard  for  every  ocean,  and  the 
same  measure  of  seaworthiness  will  not  apply  to  all  parts  of  a 
given  ocean  or  to  all  times  in  the  same  part  of  the  ocean.  A 
vessel  fit  for  Atlantic  coastwise  trade  may  be  unseaworthy  for 
trans- Atlantic  trade.  So,  too,  a  vessel  suitable  for  trans-Atlantic 
trade  in  the  summer  season  may  be  an  unseaworthy  risk  in  the 


176  MA  laSE  LXSURA  \<  'IC 

winter  months.  Then  again  a  ship  uiigiit  he  considered  fit 
to  carry  a  Hght,  non-perishable  trans-Athmtic  cargo  in  the  winter, 
and  yet  be  absolutely  unfit  to  carry  a  heavy  perishable  cargo  over 
the  same  route  at  the  same  season.  There  is  no  fixed  and 
predetermined  standard  for  any  particular  vessel,  trade  or  route, 
except  in  so  far  as  the  necessity  of  being  properly  constructed, 
conducted  and  found  may  be  oonsidored  as  a  fixed  standard. 

Seaworthiness  Refers  to  Inception  of  Risk. — It  must  be  ob- 
served that  the  implied  warranty  of  seaworthiness  extends  not 
alone  to  those  qualities  and  defects  which  are  apparent,  but  also 
to  qualities  and  defects  which  are  unknown  to  the  assured.  The 
implied  warranty  of  seaworthiness  refers  primarily  to  the  incep- 
tion of  the  risk.  It  is  the  condition  of  the  vessel  at  this  time, 
judged  in  the  light  of  the  cargo  it  is  to  carry  and  the  voyage  upon 
which  it  is  about  to  enter,  that  determines  seaworthiness.  If, 
however,  the  voyage  is  divisible  into  stages,  and  a  different 
standard  applies  to  each  stage,  then  it  may  be  that  each  particular 
portion  of  the  risk  would  be  separately  considered.  A  tempo- 
rary condition  of  unseaworthiness,  will  not  necessarily  void  a 
policy,  but  may  suspend  the  insurance  only  during  the  continu- 
ance of  such  condition,  if  the  defect  can  be  remedied  at  the  port 
of  departure.  The  risk  having  commenced,  and  the  vessel 
being  in  a  seaworthy  condition,  the  happening  of  some  fortuitous 
event,  rendering  the  vessel  unseaworthy  will  in  no  wise  void  the 
pohcy. 

Implied  Warranty  of  Seaworthiness  not  Applicable  to  Hull  Time 
Risks. — While  the  doctrine  of  seaworthiness  applies  equally  to 
cargo,  freight,  profit  and  other  forms  of  marine  insurance  and  to 
hull  insurance  written  on  the  trip  or  voyage  basis,  the  courts 
have  decided  that  in  general  there  is  no  implied  warranty  of  sea- 
worthiness with  respect  to  hull  insurance  written  on  time.  In 
England  this  principle  is  settled,  but  in  this  country  there  are  cer- 
tain exceptions  to  the  rule.  When  the  exact  location  of  a  vessel  is 
unknown  because  it  is  at  sea,  it  is  obvious  that  the  facts  on  which 
an  implied  warranty  of  sea  wort  Illness  would  depend  might  not 
be  provable.  There  is,  therefore,  no  ground  for  insisting  on  the 
implied  warranty  if  the  policy  attaches  when  the  vessel  is  at  sea. 
On  the  other  hand,  there  would  seem  to  be  no  sufficient  reason 
why  the  doctrine  of  seaworthiness  should  not  apply  on  a  time 


THE  MEMORANDUM  CLAUSE  111 

risk  attaching  while  the  vessel  is  in  port.  It  is  possible  for  an 
underwriter  to  make  any  implied  warranty  an  expressed  war- 
ranty. An  expressed  warranty  of  seaworthiness  in  a  time  hull 
policy  would,  therefore,  be  proper,  but  if  the  vessel  were  at  sea  at 
the  inception  of  the  risk,  there  would  be  great  difficulty  in  es- 
tablishing by  proof  its  unseawortliiness. 

The  Waiver  of  Warranty  of  Seaworthiness. — In  the  days  when 
it  was  usual  for  a  shipowner  to  load  his  vessel  with  his  own  cargo, 
or  when  the  cargo  owner  chartered  a  vessel  to  carry  his  goods,  it 
seemed  natural  and  justifiable  that  the  warranty  of  seaworthi- 
ness should  be  read  into  the  insurance  contract.  The  cargo 
owner  chose  the  vessel  which  was  to  carry  his  goods,  and  it  was  a 
fair  presumption  that  he  knew  its  condition  and  equipment. 
Now,  however,  with  the  establishment  of  steamship  lines  and 
with  the  great  increase  in  size  and  carrying  capacity  of  vessels, 
it  is  somewhat  of  a  hardship  for  the  cargo  owner  to  receive  in- 
surance subject  to  an  implied  warranty  of  seaworthiness,  when 
he  knows  little  about  the  carrying  vessel  and  is  not  in  as  good 
a  position  as  the  underwriter  himself  to  find  out  about  its  con- 
dition and  equipment.  Accordingly  it  is  not  unusual  to  find 
in  cargo  policies  a  clause  reading:  "Seaworthiness  of  the  vessel 
as  between  the  assured  and  the  underwriter  is  hereby  admitted." 
This  clause  in  no  waj^  waives  the  implied  agreement  between  the 
assured  and  the  carrier  that  the  latter  will  furnish  a  seaworthy 
vessel,  and  the  underwriter  under  his  right  of  subrogation  will, 
in  the  event  of  loss  being  paid,  receive  the  assured 's  right  of 
action  against  the  carrier  if  the  implied  agreement  is  not 
performed. 

Implied  Warranty  of  Seaworthiness  Refers  to  Vessel,  Not 
to  Cargo. — In  this  connection  it  is  interesting  to  note  that  there  is 
no  implied  warranty  of  seaworthiness  with  respect  to  the  cargo 
itself,  the  warranty  runs  only  against  the  vessel.  Many  cargoes 
may  be  shipped  in  such  bad  condition  that  it  may  imperil  the 
ship.  Thus  in  the  case  of  soft  coal  which  heats  readily,  or  in  the 
case  of  improperly  cured  vegetable  fibre  such  as  hemp,  which  is 
subject  to  spontaneous  combustion,  the  mere  shipping  of  such 
cargo  would  not  void  the  policy,  but  the  underwriter  would  not 
be  liable  for  loss  by  fire  if  it  could  be  established  that  the  assured 
while  aware  of  the  condition  of  the  cargo  when  shipped,  never- 


178  MAh'JSF,   IXSriLWCE 

tholcss  negligently  ijcrmit  led  ils  loading  in  siidi  condition. 
Nor  would  he  be  liable  if  it  could  be  shown  that  the  fire  was  due 
to  the  inherent  qualities  of  the  cargo  itself.  It  will  be  observed 
that  a  breach  of  the  implied  wan-ant y  of  seaworthiness  goes  to 
the  root  of  the  policy  itself  and  voids  the  whole  transaction, 
whereas  losses  which  may  overtake  the  cargo  on  account  of  its 
condition  or  inherent  qualities  are  the  only  ones  from  which  the 
underwriter  is  exonerated,  other  perils  insured  against  remaining 
at  his  risk. 

Proof  of  Breach  of  Warranty  of  Seaworthiness. — While  it  is 
true  that  the  implied  warranty  of  seaworthiness  is  the  most 
important  and  far  reaching  of  all  the  implied  warranties,  it  is 
equally  true  that  it  is  more  difficult  lo  prove  a  breach  of  this 
warranty  than  it  is  to  prove  the  breach  of  the  others.  Some  cases 
readily  demonstrate  a  condition  of  unseaworthiness,  as  when  a 
vessel  shortly  after  leaving  port,  founders  in  clear  weather  and 
a  calm  sea.  But  in  the  vast  majority  of  cases  there  is  some  dis- 
turbed condition  of  the  sea  or  of  the  elements  existing  at  the  time 
the  vessel  is  lost,  and  to  prove  that  the  loss  was  due  to  the  unsea- 
worthiness of  the  vessel  and  not  solely  to  the  unusual  action  of 
the  forces  of  nature  on  a  seaworthy  vessel  is  a  matter  of  no  little 
difficulty.  The  safe  rule  for  the  underwriter  to  follow  is  to 
insure  only  by  vessels  which  he  is  reasonably  sure  are  fit  for  the 
proposed  work,  and  not  to  insure  doubtful  vessels  and  then  rely 
on  the  breach  of  an  implied  warranty  to  make  void  the  policy 
and  prevent  the  collection  of  a  loss.  It  is  imprudent  for  an  under- 
writer to  state  that  a  vessel  is  unseaworthy,  even  if  he  believes 
such  to  be  the  case,  as  the  owner  of  the  vessel  may  sue  him  for 
damages  occasioned  by  the  publication  of  such  adverse  opinion, 
and  the  underwriter  may  be  unable  to  establish  in  defense,  that 
his  opinion  was  justified  by  the  existing  facts. 

ImpHed  Warranty  of  Prompt  Attachment  of  Risk. — There  is 
in  all  polici(!S,  except  those  written  on  time,  an  imphed  warranty 
that  the  risk  will  attach  within  a  reasonable  time.  The  insurance 
does  not  necessarily  attach  from  the  time  the  policy  is  issued. 
It  may  relate  to  a  prospective  voyage.  Nevertheless,  in  the 
absence  of  specific  information  to  the  contrary  the  underwriter 
is  justified  in  assuming  and  usually  does  assume  that  the  proposed 
venture  will  commence  with  duo  dispatch.     The  reasons  for  the 


THE  MEMORANDUM  CLAUSE  179 

rule  arc  obvious.  It  has  already  been  suggested  that  the  measure 
of  risk  existing  in  a  given  port  or  over  a  named  route  is  not  the 
same  at  all  seasons  of  the  year,  and  an  underwriter  in  taking  a 
risk  has  in  mind  and  bases  his  rate  of  premium  on  the  conditions 
existing  or  hkely  to  exist  at  or  about  the  time  the  hazard  is 
accepted.  If,  for  instance,  an  assured  places  in  the  month  of 
August  a  risk  on  a  vessel  to  sail  from  Montreal  to  Europe  the 
underwriter  who  assumes  the  risk,  has  in  mind  the  hazards  exist- 
ing in  the  port  of  Montreal  and  in  the  river  and  Gulf  of  St.  Law-i 
rence  during  the  month  of  August.  If,  however,  the  sailing  is 
delayed  by  the  assured  until  the  latter  part  of  November,"  when 
conditions  with  respect  to  navigation  in  these  waters  are  becoming 
extra  hazardous,  a  different  risk  has  been  substituted  for  the  one 
the  underwriter  assumed  and  he  should  be  and  is  relieved  by  law 
from  the  execution  of  his  contract.  Then  again,  an  assured, 
obtaining  insurance  on  a  cargo,  may  for  some  market  reason  or 
otherwise,  delay  the  sailing  of  the  vessel  after  the  loading  is  com- 
pleted, thus  imposing  on  the  underwriter  a  longer  and  different 
risk  from  the  one  contemplated  by  him  when  the  risk  was  as- 
sumed. Under  such  a  state  of  facts  the  underwriter  will  be 
relieved  of  his  obligation. 

Delay  Must  be  Unreasonable  to  Void  Contract. — Of  course, 
in  all  such  cases,  the  test  of  whether  or  not  the  delay  incurred  is 
sufficient  to  void  the  contract,  is  the  reasonableness  or  unreason- 
ableness of  the  delay.  This  is  a  question  of  fact  determined  in 
the  light  of  all  the  circumstances  surrounding  the  case.  If  the 
delay  is  the  result  of  interference  or  other  overt  act  on  the  part 
of  the  assured  a  clearer  and  more  easily  determined  case  is  found 
than  where  such  delay  is  solely  the  result  of  the  action  of  others 
or  because  of  circumstances  over  which  the  assured  had  no 
control.  This  warranty  is  one  which  works  justice  to  both  assured 
and  underwriter.  On  the  one  hand  the  assured  is  not  prevented 
from  arranging  his  insurance  in  advance  of  the  attachment 
of  the  risk,  on  the  other  hand,  the  underwriter  cannot  be  led 
Unwittingly  into  assuming  a  risk  dijfferent  from  or  greater  than 
the  one  to  be  pre'sumed  from  conditions  which  exist  at  the  time 
the  risk  is  taken  or  are  apt  to  exist  in  the  immediate  future. 

Implied  Warranty  of  "  No  Deviation." — Closely  connected  with 
the  implied  agreement  that  the  voj^age  will  lie  commenced  within 


180  MARINE  INSURANCE 

a  reasonable  time,  is  tlie  implied  warranty  that  there  shall  be  no 
deviation.  The  doctrine  of  "no  deviation"  has  already  been 
considered.  No  further  discussion  is  here  necessary  except  to 
reiterate  that  the  assured,  after  the  risk  has  once  attached, 
cannot  substitute  a  different  risk,  no  matter  how  slight  the  dif- 
ference may  be  or  whether  or  not  the  substituted  risk  involves 
a  p;rcater  or  less  hazard  than  did  the  original  voyage,  save  only 
in  the  case  of  excusable  deviation.  This  doctrine  is  merely  the 
statement  in  specific  form  of  the  general  legal  principle  that 
a  formal  contract  cannot  be  varied  without  the  mutual  consent 
of  the  parties  to  the  contract. 

Other  Implied  Warranties. — The  foregoing  are  the  principal 
imphed  warranties,  although  included  under  this  head  are  some- 
times found  implied  conditions  such  as:  "that  the  assured  shall 
have  an  insurable  interest,"  "  that  the  assured  shall  not  be  guilty 
of  negligence"  and  "that  the  assured  shall  make  a  full  disclosure 
of  all  the  pertinent  facts  in  connection  with  the  risk,"  all  of  which 
are  more  in  the  nature  of  conditions  which  must  exist  in  order  to 
have  a  valid  contract,  than  warranties  the  breach  of  which  will 
void  the  contract.  Formerly  there  seems  to  have  been  an  im- 
plied warranty  of  neutral  character  and  conduct  of  the  voyage, 
but  owing  to  conflicting  authority  in  regard  to  this  question  it  is 
best  to  insist  on  an  expressed  warranty  of  neutrality,  if  the 
underwriter  wishes  to  avoid  liabilit}'  for  a  breach  of  neutrality. 

Breach  of  Warranty  May  be  Excused. — As  has  already  been 
suggested  the  underwriter  may  agree  to  waive  any  of  the  implied 
warranties  except  that  of  legal  conduct,  or  he  may  insist  on 
making  the  implied  warranty  an  expressed  condition  in  the 
policy.  Furthermore  he  may  excuse  the  breach  of  any  of  the 
implied  warranties  since  all  of  them  are  read  into  the  policy  by 
law  as  a  measure  of  protection  to  the  underwriter,  which  protec- 
tion he  is  at  liberty  to  claim  or  not  as  he  may  choose. 

Expressed  Warranties. — As  the  breach  of  one  of  the  impUed 
warranties,  unless  excusable,  will  void  the  policy  from  the  date 
of  the  breach,  so  the  failure  to  observe  the  conditions  of  an  ex- 
pressed warranty  will  also  void  it.  Thus  expressed  warranties 
are  of  the  same  nature  as  implied  warranties,  but  are  different 
in  their  form  and  origin.  The  implied  warranties  are  read  into 
the  policy  by  law,  the  expressed  warranties  are  written  into  the 


THE  MEMORANDUM  CLAUSE  181 

policy  by  the  intention  of  the  parties.  The  impUed  warranties 
are  few  in  number,  the  expressed  warranties  are  without  number 
and  may  relate  to  any  matter  whether  it  be  vital  to  the  contract 
or  not.  Expressed  warranties  must  be  strictly  and  it  may  be 
said  literally  complied  with. 

Warranties  and  Stipulations. — An  expressed  warranty  may 
relate  to  a  present,  past  or  future  condition.  It  is  a  written 
agreement  that  certain  facts  are  or  wore  or  shall  be  true,  or  that 
certain  acts  have  l)een  or  shall  be  done.  It  is  not  essential  that 
the  word  "warranted"  be  used,  it  is  sufficient  that  there  be  an 
allegation  of  a  fact  relating  to  the  risk.  Thus  the  expression 
"American  Ship  Atlas"  is  an  expressed  warranty  that  the  Ship 
Atlas  is  under  the  American  flag.  So,  too,  the  statement  that  a 
vessel  is  in  port  on  a  named  day  is  a  warranty  of  that  fact. 
On  the  contrary  it  must  not  be  inferred  merely  because  the  word 
"warranted"  is  used  in  a  clause  that  the  expression  is  an  ex- 
pressed warranty.  Thus  the  common  clauses  appearing  in 
policies  such  as  "warranted  free  of  particular  average,"  "war- 
ranted free  of  capture,  seizure,  etc.,"  are  not  expressed  warranties, 
but  merely  stipulations  in  regard  to  the  extent  of  the  under- 
writer's liability.  This  will  be  apparent  when  it  is  considered 
that  if  such  clauses  were  expressed  warranties,  the  happening  of  a 
partial  loss,  or  the  mere  fact  of  a  capture  or  seizure  taking  place 
would  absolutely  void  the  policy. 

Expressed  Warranties  Usually  Relate  to  Material  Conditions. 
— Expressed  warranties  may  relate  to  any  matter  whether  material 
or  not  if  the  underwriter  insists  on  the  warranty  and  the  assured 
is  willing  to  have  the  validity  of  the  insurance  depend  on  a 
strict  compliance  with  it.  As  a  matter  of  practice,  however, 
expressed  warranties  are  only  inserted  in  regard  to  matters  of 
really  vital  concern  with  respect  to  the  contract.  Thus  expressed 
warranties  relative  to  sailing  are  often  inserted  in  policies  since 
much  depends  on  the  particular  period  during  which  a  risk  is 
exposed  to  sea  perils.  Warranties  are  also  inserted  agreeing  to 
the  classification  of  the  vessel  in  one  of  the  classification  societies. 
If  such  class  cannot  be  obtained  the  insurance  will  not  attach. 
Warranties  in  regard  to  loading  are  also  found,  as  for  instance  that 
a  vessel  will  not  load  more  than  a  certain  percentage  of  her  cargo 
on  deck,  or  that  her  loading  will  be  in  conformity  with  the  rules 


182  MARINE  INSURANCE 

of  :i  certain  I  ndcrwiitcrs'  Jioard.  'riicre  arc  many  warranties 
in  regard  to  war  insurance,  such  as  those  of  neutral  ownership  and 
(•onsiji;nnient,  or  warranties  of  convoy.  Underwriters  usually 
insert  only  warranties  I'elating  to  matters  under  the  control  of 
the  assured  or  within  the  knowledge  of  the  assured. 

Representation,  Misrepresentation  and  Concealment. — Ma- 
rine insurance  being  founded  on  tlie  fullest  good  faith  between 
the  contracting  parties,  it  is  not  surprising  that  we  find  many 
decisions  relating  to  marine  insurance  which  refer  to  what  are 
known  as  representations,  misrepresentations  and  concealments. 
Phillips  in  his  work  on  marine  insurance  defines  these  words  as 
follows : 

Section  524. — A  representation  in  insurance  is  the  communication 
of  a  fact,  or  the  making  of  a  statement,  by  one  of  the  parties  to  a  con- 
tract of  insurance  to  the  other  in  reference  to  a  proposal  for  their  enter- 
ing into  the  contract,  tending  to  influence  his  estimate  of  the  character 
and  degree  of  the  risk  to  be  insured  against.  To  constitute  a  repre- 
sentation, says  Mr.  C.  J.  Marshall,  there  should  be  an  affirmation  or 
denial  of  some  fact,  or  an  allegation  which  plainly  leads  the  mind  to  an 
inference  of  a  fact. 

Section  525. — A  fact  or  statement  having  such  tendency  is  called  a 
material  fact  or  statement.  One  having  no  such  tendency  is  called 
inwiaterial. 

Section  529. — A  misrepresentation  is  a  false  representation  of  a 
material  fact,  by  one  of  the  parties  to  the  other,  tending  directly  to 
induce  the  other  to  enter  into  the  contract,  or  to  do  so  on  terms  less 
favorable  to  himself,  when  he  otherwise  might  not  do  so,  or  might 
demand  terms  more  favorable  to  himself. 

Section  531. — Concealment  in  insurance  is  where,  in  reference  to  a 
negotiation  therefor,  one  party  suppresses,  or  neglects  to  communicate 
to  the  other,  a  material  fact,  which,  if  conununicated,  would  tend 
directly  to  prevent  the  other  from  entering  into  the  contract,  or  to  in- 
duce him  to  demand  terms  more  favorable  to  himself;  and  which  is 
known,  or  presumed  to  be  so,  to  the  party  not  disclosing  it,  and  is  not 
known,  or  presumed  to  be  so,  to  the  other. 

The  Avoidance  of  Contracts — Fraud. — These  quotations  give 
in  brief  and  lucid  terms  the  underlying  conditions  with  respect 
to  these  three  important  elements  in  the  negotiation  of  insurance 
contracts.  If  through  the  exercise  of  representations,  mis- 
representations or  concealments  the  underwriter  or  the  assured 
is  induced  to  ont(M-  into  a  contract  which  is  different  from  that 


THE  MEMORANDUM  CLAUSE  183 

which,  under  the  circumstances,  he  was  justified  in  supposing  it 
to  be,  the  law  will  relieve  him  of  the  burden  of  the  agreement  on 
the  ground  that  the  minds  of  the  contracting  parties  did  not 
meet,  and  that,  therefore,  there  could  be  no  contract.  It  is  not 
necessary  that  representations,  misrepresentations  or  conceal- 
ments be  made  with  fraudulent  intent,  the  mere  fact  that  certain 
conditions  are  represented  or  misrepresented  or  concealed  and 
exercise  an  improper  influence,  is  sufficient  to  exonerate  the 
offended  party  from  his  contractual  obligations.  The  law  of 
representations,  misrepresentations  and  concealments  applies 
not  only  to  direct  insurance  but  is  of  equal  force  and  effect  in 
the  case  of  reinsurance. 

What  Must  be  Disclosed. — All  material  information  whether 
the  result  of  knowledge  or  rumor  should  be  disclosed.  Thus, 
if  the  assured  has  heard  that  the  vessel  by  which  he  desires 
insurance  has  met  with  a  disaster,  however  slight,  he  must  dis- 
close this  information  to  the  underwriter.  So  too  the  under- 
writer if  he  knows  or  has  reason  to  believe  that  the  vessel  has 
completed  the  voyage  on  which  insurance  is  desired  he  must 
inform  the  assured  of  such  knowledge  or  information.  A  mis- 
representation or  concealment  made  by  an  agent  without  the 
knowledge  or  consent  of  the  principal  is  binding  on  the  principal. 
In  this  manner  an  insurance  broker  may  prejudice  the  position 
of  his  principal.  It  has  been  held  that  a  material  representation 
by  the  assured  through  misconstruction  of  information  is  a 
misrepresentation  and  that  unwittingly  omitting  to  state  a 
material  fact  is  a  concealment. 

The  Efifect  of  a  Representation. — A  representation  differs 
from  an  expressed  warranty  in  that  a  literal  compliance  with 
the  representation  is  not  essential.  It  is  enough  that  there  be  a 
material  compliance  with  the  conditions  represented.  However, 
a  Uteral  but  not  a  substantial  compliance  is  not  enough.  A 
representation  continues  to  be  binding  until  it  is  revoked.  All 
material  facts  must  be  revealed  and  it  is  wise  to  reveal  all  ap- 
parently immaterial  facts  which  have  a  bearing  on  the  risk  as 
the  underwriter  may  consider  such  facts  of  greater  weight  than 
does  the  assured.  The  underwriter  is  at  liberty  to  ask  any 
question  in  regard  to  the  risk  which  he  sees  fit,  whether  the 
question  seem  material   or   not.     Oftentimes  questions  which 


181  MAUIM:  IXSURAXCE 

sofin  trivial  arc  asked  by  an  uiuiurwiiLer  mcre-ly  as  lest  (jucstions, 
if  he  suspects  that  the  assured  or  his  agent  is  withholding  material 
information.  As  it  is  the  underwriter's  capital  which  is  to  be 
put  at  risk,  it  is  proper  for  lum  to  endeavor  to  obtain  any  in- 
formation which  he  considers  necessary,  in  order  to  determine 
whether  the  risk  is  one  which  he  cares  to  insure,  and  if  he  does, 
to  decide  what  rate  is  adequate  to  compensate  for  the  protection 
to  be  afforded. 

Certain  Facts  Need  Not  be  Disclosed. — There  are,  of  course, 
limitations  to  the  extent  to  which  the  disclosure  of  material 
facts  is  necessary.  The  assured  is  not  bound  to  disclose  facts 
which  are  matters  of  common  knowledge.  Thus,  it  is  not  neces- 
sary to  disclose  usages  of  trade  common  to  risks  similar  to  the 
one  under  consideration,  nevertheless  if  there  are  conditions 
jioculiar  to  the  particular  risk  but  not  matters  of  common  knowl- 
edge they  must  be  disclosed.  The  assured  need  not  state  that 
other  underwriters  have  declined  the  risk,  although  the  under- 
writer might  consider  this  an  important  fact.  However,  if 
the  assured  states  that  other  underwriters  have  accepted  part 
of  the  risk  at  a  certain  rate  the  assured  will  be  bound  by  such 
representation.  If  by  the  statements  of  the  assured,  the  under- 
writer is  put  on  inquiry  and  fails  to  investigate  further  into  the 
matter,  he  will  be  bound  by  the  policy. 

What  A  Representation  Implies. — A  representation  is  con- 
strued according  to  the  ordinary  meaning  which  the  words 
imply  and  the  natural  inferences  drawn  from  such  representation 
are  presumed  to  be  implied.  Thus,  if  the  assured  states  that  a 
vessel  was  in  a  certain  port  on  a  certain  day,  it  will  be  presumed 
that  the  vessel  was  there  and  in  good  safety  at  some  time  during 
that  day.  A  representation  is,  however,  to  be  construed  in  its 
ordinary  sense,  and  an  unusual  meaning  cannot  be  read  into 
the  words.  The  mere  statement  by  the  assured  of  an  expecta- 
tion, opinion,  or  belief  must  be  distinguished  from  a  representa- 
tion of  a  definite  fact  or  condition.  If  the  assured  states  a  fact 
in  regard  to  a  risk  in  such  manner  that  the  underwriter  naturally 
infers  a  meaning  different  from  the  true  meaning  it  is  a  mis- 
representation. So  too  if  the  assured  willfully  and  fraudulently 
omits  to  learn  material  facts,  such  action  amounts  to  a 
concealment. 


THE  MEMORANDUM  CLAUSE  185 

Fraud. — -The  subject  of  fraud  is  closely  connected  with  that 
of  representation,  misrepresentation  and  concealment.  While 
these  latter  conditions  may  exist  through  an  innocent  mistake 
or  through  ignorance  on  the  part  of  the  assured,  it  often  happens 
that  the  withholding  of  information  or  the  giving  of  incorrejt 
or  misleading  information  is  intentional  on  the  part  of  the  assured 
or  his  agent.  If  it  can  be  proved  that  fraud  exists  the  policy 
will  be  void  from  its  inception  as  the  minds  of  the  contracting 
parties  cannot  be  considered  to  have  met.  On  the  other  hand 
if  the  giving  or  withholding  of  material  information  has  been  the 
result  of  an  innocent  mistake,  the  policy  will  be  effected  only  with 
respect  to  consequences  arising  from  such  innocent  action. 


CIIAPTKR  11 

CARGO  INSURANCE  AS  AN  UNDERWRITING 
PROBLEM 

Basic  Form  of  Policy  Necessary. — The  consideration  of  marine 
insurance  up  to  this  point  has  been  theoreticah  The  basic  form 
of  pohcy  common  to  all  branches  of  the  business  has  been  anal- 
yzed, but  little  consideration  has  been  given  to  the  practical 
ajijilication  of  the  underlying  principles  governing  the  practice 
of  this  particular  branch  of  the  insurance  science.  While  it  is 
necessary  that  there  be  a  basic  form  of  contract  adaptable  to  all 
the  particular  forms  of  marine  insurance,  it  is  equally  necessary, 
since  this  branch  of  insurance  is  concerned  in  transactions  in- 
volving all  types  of  vessels,  all  kinds  of  commodities  and  all 
parts  of  the  civilized  and  uncivilized  world,  that  the  form  be 
sufficiently  elastic  to  acconnnodate  itself  to  the  peculiar  problems 
and  the  individual  conditions  that  surround  each  particular 
venture.  That  the  basic  form  is  admirably  adapted  for  this 
purpose  has  been  adequately  demonstrated  by  its  continued  use 
during  the  long  period  in  which  the  commerce  of  the  world  has 
been  developing.  Many  times,  it  is  true,  the  basic  form  is  buried 
under  a  mass  of  modifying  clauses,  but  out  of  the  apparent  con- 
fusion of  words,  a  definite  and  understandable  contract  of  indem- 
nity appears. 

Cargo,  Hull  and  Freight  Insurance.^ — ^Marine  insurance  may 
be  divided  into  three  general  sections  namely,  cargo,  hull  and 
freight  insurance.  The  practice  of  insurance  as  applied  to  each 
of  these  three  great  branches  of  maritime  commerce  is  so  different 
that  they  must  be  considered  separately.  In  point  of  volume 
cargo  insurance  stands  preeminent.  The  ordinar}'  cargo  risk 
being  of  comparatively  short  duration,  an  underwriter's  capital 
employed  in  cargo  insurance  is  turned  over  many  times  in  a 
single  year.  Then  again  in  a  single  venture  there  will  be  but 
one  vessel,  and  ordinarily  but  one  freight  interest,  but  if  the 
vessel  be  a  general  cargo-ship  there  may  be  hundreds  of  cargo 
interests  involving  many  different  kinds  of  goods  all  exposed  to 

ISO 


CARGO   INSURANCE   AS   AN    UNDERWRITING   PROBLEM  187 

the  same  general  hazards,  but  each  presenting  its  special  pecuUari- 
ties  as  an  underwriting  problem.  In  discussing  the  great  interest 
of  cargo  it  will  be  best,  in  the  first  place  to  treat  it  as  a  general 
problem  and  then  to  give  special  consideration  to  individual  cargo 
interests. 

General  and  Full  Cargoes. — In  general,  cargo  insurance  may- 
be divided  into  two  broad  classes,  the  one  relating  to  general 
cargoes  and  the  other  to  cargoes  consisting  of  a  single  commodity 
usually  in  bulk  form  and  commonly  referred  to  as  full  cargo  busi- 
ness. The  general  cargo  is  one  consisting  of  a  variety  of  com- 
modities shipped  by  one  or  by  many  merchants,  while  the  full 
cargo  consists  of  a  single  commodity  which  is  usually  shipped  in 
its  entirety  by  one  merchant,  or  may  be  made  up  from  the  prop- 
erty of  several  shippers.  A  vessel  taking  on  a  general  cargo 
ordinarOy  loads  at  the  berth,  as  it  is  known,  and  accepts  any  cargo 
which  may  be  offered  for  the  ports  for  which  the  vessel  is  destined. 
On  the  other  hand  f  uU  cargoes  are  ordinarily  loaded  under  charter, 
where  the  entire  capacity  of  the  vessel  is  hired  out  to  one  mer- 
chant, who  for  the  time  being  controls  the  use  of  the  ship. 

Under  and  On  Deck  Cargoes. — Cargo  insurance  may  again 
be  subdivided  into  under  and  on  deck  cargoes.  Under  deck 
cargo  includes  all  goods  loaded  below  the  main  deck  of  the  vessel, 
on  deck  cargo  in  its  strictest  sense  referring  to  all  goods  loaded 
above  this  deck  whether  under  cover  or  not.  By  custom  all 
cargo  stowed  below  the  weather  deck  is  considered  to  be  under 
deck  cargo,  as  it  is  no  more  exposed  to  the  elements  than  is  cargo 
in  the  hold.  Theoretically  on  deck  cargo  is  not  covered  unless 
specifically  mentioned  as  being  on  deck — practically  certain 
cargoes  from  theu*  very  nature  or  from  the  custom  of  trade  put 
an  underwriter  on  inquiry  to  know  whether  or  not  all  or  part 
of  such  cargo  is  on  deck.  Thus,  sulphmic  acid — because  of  its 
hazardous  nature — is  shipped  only  on  deck,  while  a  full  cargo  of 
lumber  in  the  ordinary  case  presupposes  a  part  of  the  shipment 
on  deck,  as  usually  a  vessel  loaded  with  lumber  will  not  be  in 
proper  trim  unless  a  considerable  portion  of  the  cargo  is  on  deck. 

A  General  Knowledge  of  all  Commodities  Essential.^ — Each 
particular  commodity  has  its  own  peculiarities  and  a  full  knowl- 
edge of  all  is  essential  in  order  that  proper  consideration  may  be 
given  to  each.     Some  raw  products  are  shipped  in  their  original 


iss  MAh'ixr:  j.\sri{.\x('i<] 

coiidilioii  wliilo  otlicrs  ;uc  put  llirough  ;i  prcliiiiiuary  process 
before  shipment.  Some  coininodities  are  shipped  in  ])ulk,  wliile 
others  are  forwarded  in  jKickages  or  wrappers  of  some  kind.  Tlie 
same  commotUty  coming  from  two  different  parts  of  the  world 
will  present  two  entirely  different  types  of  risk.  Thus  cotton 
exported  from  the  United  States  is  usually  shipped  in  a  very  poor 
package,  the  bale  Ixnng  improixirly  i)rotected  by  burlap  with 
the  result  that  it  is  apt  to  arrive  at  destination  in  bad  condition. 
On  the  other  hand  cotton  exported  from  Egypt  is  in  a  snuiller 
bale  perfectly  protected  by  burla[)  and  in  the  usual  course  will 
arrive  in  perfect  condition.  So  we  hnd  that  rubl)er  shipped  from 
Brazil  is  in  chunks  while  the  same  conunodity  imported  from  the 
Far  East  is  partially  refined,  fashioned  into  slabs  and  carefully 
packed  in  cases.  It,  therefore,  is  not  enough  that  the  under- 
writer know  that  the  risk  offered  to  him  is  cotton  or  ru])}>er,  he 
must  be  able  to  look  behind  the  mere  commodity  and  know  its 
peculiarities,  its  physical  condition,  and  the  nature  of  its  shipping 
package. 

Marine  Insurance  Conforms  to  Trade  Customs. — liut  this  is 
not  all.  Marine  insurance  does  not  as  a  rule  create  new  condi- 
tions. Marine  underwriters  may  and  do  strive  to  improve  local 
conditions,  but  they  adapt  their  form  of  protection  to  the  customs 
of  the  country,  the  usages  of  the  trade  and  the  physical  conditions 
existing  in  the  various  parts  of  the  world.  Thus  if  the  custom  of 
the  trade  or  of  the  country  is  that  goods  are  sold  to  exporters  at 
the  farm  or  the  plantation,  insurance  will  be  furnished  to  attach 
at  the  farm  or  plantation.  If  on  the  other  hand  the  raw  com- 
modity is  brought  to  the  ports  and  sold  there,  insurance  will  l)e 
furnished  attaching  at  the  port.  Thus  it  will  be  found  that  in 
the  raw  cotton  business  of  our  own  country  the  marine  under- 
writer furnishes  protection  from  the  moment  the  cotton  is  ginned 
and  weighed,  whereas  in  the  exporting  of  grain  the  marine  under- 
writer assumes  no  risk  until  the  grain  is  actually  waterborne. 
Each  particular  trade  has  its  peculiar  customs  and  the  marine 
underwriter  conforms  to  them  so  far  as  prudent  underwriting  will 
permit.  An  underwriter  is  presumed  to  know  the  ordinary  cus- 
toms of  trade  or  if  he  does  not  is  at  least  put  on  inquiry  as  to 
what  these  customs  are. 


CARGO    INSURANCE    AS    AN    UNDERWRITING   PROBLEM  189 

Methods  of  Shipment  Controlled  by  Physical  Environment. — 

The  customs  of  trade  are  in  part  controlled  by  the  physical 
environment.  Therefore  the  methods  of  shipment  at  deep  water 
ports  which  are  fed  by  a  fertile  and  well-developed  hinterland 
will  be  entirely  different  from  those  at  shallow  and  unprotected 
ports  where  access  to  the  interior  is  difficult  or  where  the  back 
country  is  not  fertile  or  is  a  desert.  Thus  we  find  that  at  the 
North  Atlantic  ports  of  the  United  States  raw  commodities  are 
partially  processed  before  export,  iron  for  instance  not  being 
shipped  as  ore,  but  after  being  partially  refined  and  converted 
into  pigs.  This  is  true  of  most  of  the  products  of  the  mines. 
The  products  of  the  forests  are  converted  into  commercial  lumber 
before  being  shipped.  The  products  of  the  farm  are  in  some  in- 
stances shipped  in  their  natural  condition  as  in  the  case  of  grains, 
while  perishable  commodities  are  processed  in  order  to  preserve 
them  and  insure  safe  carriage.  The  country  back  of  these  ports 
is  well  wooded  maldng  possible  the  shipping  of  manufactured 
goods  in  substantial  packages,  and  the  means  of  transportation 
to  the  ports  is  such  that  the  commodities  may  be  expected  to 
arrive  at  the  ports  in  good  condition. 

Knowledge  of  Trade  Customs  Important. — On  the  other  hand 
if  we  turn  to  the  Pacific  ports  of  South  America  we  find  an  en- 
tirely different  environment  resulting  in  customs  of  trade  that 
present  a  wholly  new  problem  to  the  underwriter.  Manufac- 
turing is  not  developed  along  this  coast,  with  the  result  that  we 
find  the  raw  products  of  the  mines  shipped  in  the  form  of  ore, 
shipments  of  copper  ore  and  of  nitrate  constituting  a  considerable 
part  of  the  export  trade.  These  commodities  are  brought  from 
the  mines  to  the  shore,  where  they  are  taken  by  lighters  to  the 
steamers,  which  on  account  of  the  conformation  of  the  coastline 
are  compelled  to  lie  in  open  or  partially  sheltered  roadsteads  to 
receive  their  cargoes.  Imports  are  handled  in  much  the  same 
way,  being  exposed  to  risks  peculiar  to  the  locality.  The  route 
into  the  interior  is  in  many  cases  extremely  hazardous  involving 
as  it  does  carriage  by  rail,  by  water,  by  wagon  or  by  mule.  Often 
property  is  transhipped  or  transferred  from  one  mode  of  con- 
veyance to  another  several  times,  before  the  final  destination 
is  reached.  Conditions  are,  of  course,  improving  in  these  newer 
and  less-developed  parts  of  the  world  and  the  underwriter  must 

14 


l',»()  MAh-IXK  INSlfRANCE 

kocp  hini.sclf  fully  informed  of  progress  iiiatle  or  of  hazards  in- 
creased through  some  local  disturbance  or  through  the  neglect 
of  some  decadent  government. 

Racial  Characteristics  Affect  Marine  Insurance. — In  every 
country  the  natural  environment  and  the  peculiar  national  char- 
acteristics of  the  people  have  developed  customs  that  show  their 
influence  on  the  connnercial  activities  of  the  people  and  on  their 
modes  of  conducting  their  business  enterprises.  Marine  insur- 
ance is  in  no  sense  provincial.  It  is  as  cosmopolitan  as  any 
business  can  be,  and  as  has  already  been  indicated  is  essential  to 
the  life  and  growth  of  the  race.  But  this  very  fact  makes  neces- 
sar}'  on  the  part  of  the  underwriter  a  knowledge  of  these  racial 
characteristics  and  customs.  An  underwriter  can  if  he  will, 
limit  his  business  to  routes  of  trade  between  the  highly  civil- 
ized nations,  but  if  he  is  to  fulfil  his  true  mission  he  must  be  con- 
tent to  assume  risks  in  all  trades,  making  his  rates  in  harmony 
with  the  degree  of  hazard  which  each  particular  trade  involves. 
Some  races  are  noted  for  their  low  commercial  ethics  and  the 
moral  hazard  in  such  trade  is  naturally  great.  Other  races  have 
a  high  sense  of  commercial  honor  and  integrity  and  trading  with 
these  races  involves  merely  a  consideration  of  the  physical 
hazards  involved.  It  is  in  this  respect  that  underwriter  organi- 
zations have  done  much  to  raise  the  standard  of  commer- 
cial ethics.  Their  representatives  in  foreign  ports  have  insisted 
on  a  degree  of  honesty  in  connection  with  transactions  involving 
damaged  property,  which  has  presented  to  the  native  peoples 
an  entirely  new  standard  of  business  ethics.  Even  today  some 
nations  have  not  progressed  much  beyond  the  original  theory 
that  might  makes  right  and  that  possession  is  better  evidence  of 
ownership  than  is  any  legal  title  to  property. 

Sale  of  Goods  at  Port  of  Refuge. — Among  some  races  and  in 
some  ports  there  is  found  a  sense  of  clannishness  and  a  desire  to 
band  together  to  outwit  and  despoil  the  foreigner,  wliich  has  no 
little  bearing  on  the  fortunes  of  marine  underwriters.  Casual- 
ties happen  in  all  places  and  the  master  of  a  vessel  in  distress  can- 
not always  choose  his  port  of  refuge.  It  will,  therefore,  happen 
in  many  cases  where  goods  arrive  at  a  port  of  refuge  in  such  con- 
dition that  they  must  be  sold  to  prevent  their  total  destruction, 
that  the  local  merchants  will  come  to  an  understanding  one  with 


CARCO    INSURANCE    AS    AN    UNDERWRITING   PROBLEM  191 

anotlier  that  when  the  goods  are  offered  for  sale  in  the  open 
market  or  at  auction  there  will  be  no  competitive  bidding,  or 
bidding  of  the  most  perfunctory  sort  only,  so  that  the  goods  will 
have  to  be  sacrificed.  After  this  worthy  end  has  been  attained 
distribution  of  the  goods  will  be  made  among  the  merchants  and 
another  commercial  victory  over  the  foreigner  will  be  recorded. 
These  conditions  cannot  be  avoided  and  the  rates  over  such  com- 
mercial routes  will  naturally  reflect  the  increased  hazards  involved. 
Efifect  of  Vessel  Types  on  Cargo  Insurance. — The  problem  of 
cargo  insurance  is  one  involving  not  only  the  character  of  the 
goods  themselves  and  the  routes  of  trade,  but,  like  all  other 
maritime  ventures,  is  also  vitally  concerned  with  the  carrying 
vessel.  From  the  earliest  days  of  overseas  commerce  ships  have 
been  designed  primarily  as  cargo  carriers,  and  the  story  of  the 
evolution  of  the  modern  steamer  is  largely  the  story  of  progress  in 
designing  ocean  carriers  which  would  cheaply  and  safely  transport 
cargo.  To  this  end  various  types  of  vessels  have  been  designed, 
each  type  endeavoring  to  meet  in  a  special  way  some  particular 
or  general  need  which  has  developed  in  overseas  commerce. 
Thus  there  are  single,  double  and  multiple  deck  vessels,  bulk 
carriers,  tank  vessels,  refrigerator  steamers  and  many  other 
types  having  special  merits  in  connection  with  special  trades. 
However,  it  is  not  always  possible  to  find  employment  for  vessels 
in  the  particular  trade  for  which  they  are  best  adapted  and 
vessels  may  seek  and  find  employment  in  trades  to  which  they  are 
not  altogether  suited.  Herein  lies  the  underwriter's  chief 
problem  with  respect  to  the  type  of  vessel.  Perishable  cargoes 
which  can  conveniently  be  carried  in  a  double  or  multiple  deck 
vessel,  because  this  type  provides  safe  storage  without  undue 
crushing,  are  sometimes  of  necessity  laden  in  deep  single  deck 
vessels,  where  the  packages  are  subject  to  the  severe  crushing 
force  of  the  cargo  piled  upon  them  resulting,  in  the  event  of  the 
stress  of  weather,  in  heavy  damage  claims.  Then  again  vessels 
used  in  heavy  cargo  trades,  such  as  the  carrying  of  coal  and  ore, 
and  not  fitted  for  the  transportation  of  perishable  goods  are  some- 
times used  in  such  trade  with  resultant  damage  to  the  cargo. 
The  past  four  years  have  witnessed  the  employment  in  various 
trades  of  vessels  poorly  suited  for  the  needs  of  such  employment 
with  consequent  damage  to  cargoes. 


102  MARINE  INSURANCE 

Vessel  Speed  an  Element  in  Cargo  Insurance. — The  under- 
writer of  cargo  insurance  is  concerned  not  only  with  the  vessel  as 
a  cargo  carrier  and  its  particular  fitness  for  the  carriage  of  the 
particular  kind  of  goods  under  consideration,  but  also  in  the 
speed,  size  and  general  structural  condition  of  the  vessel.  As  a 
rule  rates  of  premium  in  any  particular  class  of  business  are 
predicated  on  vessels  known  as  liners  which  liave  been  specially 
designed  and  equipped  for  trade  over  the  particular  route  in 
question.  These  vessels  have  considei-able  speed,  are  of  a  design 
suited  to  the  needs  of  the  particular  trade  and  of  a  size  proper  for 
the  safe  navigation  of  the  harbors  to  be  visited  on  the  route  in 
question.  Any  departure  from  this  standard  presents  a  risk 
varying  from  the  basis  upon  which  the  minimum  rate  has  been 
predicated.  A  vessel  of  slower  speed  will  involve  a  longer 
exposure  to  the  hazards  of  the  sea.  One  of  different  internal  con- 
struction may  expose  the  cargo  to  unforeseen  perils,  while  a  vessel 
larger  in  size  than  the  ports  of  call  will  readily  accommodate, 
involves  possible  strandings  or  unusual  lighterage  risks. 

Structural  Design  in  Its  Relation  to  Cargo. — The  structural 
design  of  a  vessel  has  a  material  bearing  upon  the  degree  of  hazard 
involved  in  an  insurance  of  the  cargo.  In  the  event  of  a  strand- 
ing, a  double  bottom  vessel  is  less  apt  to  damage  cargo.  A 
vessel  equipped  with  several  watertight  bulkheads  is  a  better 
cargo  risk  than  one  without  bulklieads  not  only  in  the  event  of 
collision  but  also  in  case  the  vessel  takes  fire.  Steamers  of  the 
well  deck  design  have  a  tendency  to  damage  cargoes  through 
leakage  owing  to  the  great  weight  of  water  which  in  rough  seas 
may  fall  with  crushing  force  in  the  well  of  the  deck,  sometimes 
forcing  water  through  the  hatches  or  through  the  openings  in  the 
surrounding  deck  erections.  Furthermore,  unless  this  type  of 
vessel  is  designed  to  quickly  discharge  the  water,  the  stability 
of  the  vessel  may  be  seriously  affected,  especially  if  it  be  heavily 
loaded.  A  twin  screw  steamer  also  has  manifest  advantages  over 
the  single  screw  type. 

Natural  Forces  as  Related  to  Cargo  Insurance. — Reference  has 
already  l)een  made  in  some  detail  to  the  natural  forces  in  and 
about  the  ocean  and  of  the  physical  topography  not  only  of  the 
ocean  bed  but  of  the  continental  shores  and  of  the  harbors. 
This  theoretical  knowledge  nmst  be  applied  practically  in  the 


CARGO    INSURANCE   AS    AN    UNDERWRITING   PROBLEM  193 

consideration  of  individual  risks.  The  underwriter  must  care- 
fully consider  the  route  to  be  followed  by  the  shipment  for  which 
insurance  is  desired.  Questions  relating  to  these  physical  condi- 
tions will  naturally  present  themselves  to  his  mind.  If  the 
insurance  offered  relates  to  a  voyage  to  or  through  the  West 
India  Islands  the  underwriter  will  consider  the  time  of  the  year, 
as  the  hurricane  season  brings  increased  perils  on  this  route.  So 
the  approach  of  winter  on  the  Great  Lakes  or  in  the  St.  Lawrence 
River  will  naturally  call  attention  to  the  increased  hazards 
which  this  period  involves  in  Lake  and  St.  Lawrence  River  trade. 
The  ice  floes  of  the  North  Atlantic  in  the  Spring  and  early 
Summer  will  not  be  overlooked  by  the  careful  underwriter  nor 
will  he  forget  the  long  nights  involving  increased  perils  in  the 
Baltic  trade  in  the  Winter  months.  The  fact  that  the  proposed 
voyage  is  through  the  inside  passages  to  Alaska  will  recall  to  the 
underwriter's  mind  that  this  route  is  poorly  charted  and  lighted 
and  therefore  extra  hazardous,  and  he  will  not  overlook  the  fact 
that  at  certain  seasons  of  the  year  fog  makes  navigation  danger- 
ous off  the  coast  of  Newfoundland  and  other  similarly  situated 
localities. 

Optional  Routes. — The  length  of  the  route  is  also  of  importance 
to  the  cargo  underwriter,  the  time  involved,  for  instance,  in  going 
to  Australia  via  the  Panama  Canal  being  less  than  when  the 
Cape  of  Good  Hope  route  is  used.  So  the  opening  of  new 
canals  providing  shorter  routes  may  greatly  affect  the  degree  of 
hazard  to  which  a  risk  may  be  exposed.  However,  it  must  be 
observed  that  a  shorter  route  does  not  necessarily  mean  a  safer 
route.  For  instance,  some  underwriters  consider  the  trip  from 
New  York  to  Boston  through  the  Cape  Cod  Canal  a  more  dan- 
gerous route  owing  to  the  currents  in  the  Canal  than  the  longer 
route  outside  Cape  Cod.  The  short  route  will  ordinarily  be 
used  if  commercially  it  effects  a  saving  in  the  cost  of  operating 
the  carrying  vessel,  yet  such  decrease  in  the  length  of  the  voyage 
may  materially  increase  the  hazards  from  the  underwriting  view- 
point. The  distance  travelled  is  relatively  of  small  importance  in 
the  consideration  of  underwriting  problems. 

Other  Elements  in  Cargo  Insurance. — ^The  question  of  valua- 
tion must  be  given  proper  consideration  and  the  amount  of 
liabiHty  which  the  underwriter  is  willing  to  assume  on  the  par- 


l'.)l  MARL\E  INSURANCE 

lic'ular  risk  will  be  detcnuinod  by  the  sum  which  he  desires  to 
retain  and  the  amount  which  he  knows  or  lias  reason  to  expect 
he  can  reinsure  on  equal  or  better  terms.  The  question  of  the 
assured  himself,  whether  principal  or  agent,  and  the  general 
character  and  reputation  of  the  various  persons  involved  in  the 
proposed  venture  will  all  be  given  their  due  weight  in  the  con- 
sideration of  each  individual  risk.  While  to  the  experienced 
underwriter  the  consideration  of  all  these  questions  to  which 
reference  has  been  made  and  of  many  others  of  perhaps  equal 
importance,  becomes  a  matter  of  intuition  or  habit,  the  enumera- 
tion of  some  of  these  questions  and  the  problems  involved  in 
them  will  give  to  the  student  of  marine  insurance  some  conception 
of  the  fund  of  information  and  the  keenness  of  judgment  with 
which  a  competent  imderwriter  must  be  endowed. 

Average  Conditions. — Up  to  this  point  no  reference  has  been 
made  to  one  of  the  most  vital  elements  in  the  discussion  of  cargo 
insurance.  This  is  the  question  of  average  conditions.  In 
considering  the  policy  form  it  was  observed  that  the  blank 
provided  for  a  payment  of  loss,  only  if  it  amounted  to  five  per- 
cent, while  in  the  memorandum  clause  further  restrictions  were 
added  relative  to  the  percentage  of  loss  for  which  the  under- 
writer would  respond.  In  determining  the  rate  of  premium  to  be 
charged  much  depends  on  the  degree  of  average  which  the  under- 
writer is  asked  to  assume  or  is  willing  to  accept.  Herein  knowl- 
edge of  the  inherent  quahties  of  each  individual  commodity  is 
all  important.  The  memorandum  clause  does  not  attempt  to 
enumerate  all  articles  and  the  restrictions  regarding  average 
therein  set  forth  with  respect  to  many  commodities,  is  unduly 
burdensome  to  the  assured.  To  make  commodities  free  of 
average  unless  general,  or  in  other  words  to  insure  onlj^  against 
total  losses  and  general  average  claims,  ignores  completely  the 
many  partial  losses,  the  direct  result  of  the  major  sea  casualties, 
i.e.,  stranding,  sinldng,  burning  and  collision. 

Free  of  Particular  Average. — It  is  therefore  but  natm*al  that 
while  the  underwriter  is  im willing  to  assume  liability  for  ordinary 
partial  losses  due  to  the  peculiar  qualities  of  the  particular 
article  or  to  its  form  of  package,  he  is  content  to  bear  partial 
losses,  the  direct  result  of  stranding,  sinking,  burning  or  collision. 
Accordingly  the  so-called   F.P.A.  (Free  of  particular  average) 


CARGO    INSURANCE    AS    AN    UNDERWRITINC   PROBLEM  195 

clause  is  adopted  and  this  in  its  various  forms  is  now  the  most 
used  clause  in  the  entire  field  of  marine  underwriting.  Basically 
it  has  two  forms:  one,  known  as  the  "F.P.A.E.C.,"  or  Free  of 
Particuhir  Average  EngHsh  Conditions  clause,  the  other  the 
"  F.P.A.  A.C."  or  Free  of  Particular  Average  American  Conditions 
clause.  These  two  forms  being  somewhat  different  in  their 
apphcation,  a  word  of  explanation  will  be  proper  in  order  to 
point  out  the  distinction  between  them. 

American  and  English  Average  Clauses  Contrasted. — The 
American  form  of  clause  commonly  used  reads:  "Free  of 
particular  average  unless  caused  by  stranding,  sinking,  burning 
or  collision  with  another  vessel."  The  underwriter  thus  stipu- 
lates that  he  assumes  no  responsibihty  for  partial  loss,  unless 
such  partial  loss  is  proximately  caused  by  one  of  the  enumerated 
casualties.  On  the  other  hand,  the  English  form  of  the  clause 
in  its  simplest  form  reads:  "Free  of  particular  average  unless 
the  vessel  or  craft  be  stranded,  sunk,  burnt  or  in  colHsion." 
Thus  as  in  the  American  form,  the  underwriter  stipulates  that 
he  shall  be  free  from  liability  from  partial  loss  in  the  ordinary 
case,  but  he  agrees  that  the  mere  happening  of  one  of  the  enumer- 
ated perils  will  nullify  the  average  agreement,  the  poHcy  then 
and  thereafter  being  subject  to  the  printed  form  with  its  specified 
average  conditions.  Thus  the  underwriter  under  the  F.P.A.E.C. 
clause  assumes  liability  in  accordance  with  the  terms  and  con- 
ditions of  the  poHcy  for  any  partial  loss  that  may  appear  after  the 
happening  of  one  of  the  enumerated  casualties,  whether  or  not 
such  partial  loss  is  the  result,  directly  or  indirectly,  of  such 
casualty.  The  mere  technical  happening  of  the  casualty  has 
divested  the  underwriter  of  all  the  protection  which  the  clause 
afforded. 

The  Effect  of  the  F.P.A.E.C.  Clause. — It  is  unfortunate  that 
the  English  conditions  clause  should  have  received  the  interpre- 
tation which  the  courts  have  given  it,  as  it  doubtless  was  origi- 
nally intended  that  the  meaning  should  be  what  the  American 
clause  clearly  stipulates,  namely,  that  the  resultant  partial  loss 
must  be  the  proximate  result  of  the  named  casualty.  The 
dominating  position  occupied  by  the  English  marine  insurance 
market  heretofore,  has  resulted  in  the  English  conditions  clause 
being  generally  used  in  the  American  market  to  the  practical  ex- 


I ! )  ( ;  M  \h'l\  /-;  /  A',S'  II R  A  A'  ( '  K 

elusion  of  (h(3  .simpler  and  more  logical  American  form.  The 
lOnj^li.sh  clause  introduces  an  element  of  speculation  into  marine 
insurance  which  will  be  shown  by  tlu;  followin.y;  illustration.  A 
ve.s.sel  containing  a  cargo  of  general  merchandi-se  insured  on 
F.P.A.E.C.  terms  from  New  York  to  Sj'dney,  Australia,  in  going 
out  of  the  port  of  New  York  strands  on  the  channel  bank,  remains 
fast  for  a  few  minutes  or  a  few  hours  as  the  case  may  Ije,  but  with 
t  he  rising  tide  floats  free,  and  absolutely  uninjured  proceedsonher 
jomiiey.  The  cargo  has  not  been  disturbed  or  injured  in  any 
respect,  yet  because  the  vessel  was  stranded,  the  exception 
provided  in  the  F.P.A.E.C.  clause  has  been  fulfilled  and  the 
goods  are  thereafter  insured  subject  to  the  printed  form  of  policy. 
Later  in  the  voyage,  through  stress  of  weather,  the  decks  open 
and  water  is  admitted  to  the  hold  damaging  the  cargo.  Under 
the  insurance  on  F.P.A.E.C.  terms  this  loss,  if  amounting  to  the 
percentage  required  by  the  printed  form,  will  be  recoverable, 
although  the  loss  resulting  from  the  leakage  through  the  decks 
was  not  caused  by  either  stranding,  sinking,  burning  or  collision. 
Under  the  American  form  the  underwriter  would  not  be  liable 
for  this  loss.  It  will  thus  be  seen  that  it  is  quite  possible  for  a 
cargo  owner  who  owns  or  controls  the  vessel  to  obtain  "suV)ject 
to  average"  insurance  at  "free  of  average"  rates,  by  insuring  on 
F.P.A.E.C.  terms,  and  then  through  collusion  with  the  master 
arrange  for  a  technical  happening  of  one  of  the  excepted  casual- 
ties so  that  the  policy  thereafter  will  be  subject  to  average. 

F.P.A.E.C.  Clause  Illogical. — A  more  pronounced  illustration 
of  the  illogical  working  of  the  F.P.A.E.C.  clause  will  appear  from 
the  following  example.  A  vessel  fully  loaded  with  a  cargo  in- 
sured on  F.P.A.E.C.  terms,  during  the  course  of  her  voyage  meets 
with  heavy  weather,  her  seams  open,  consideral)le  water  is 
shipped  and  the  cargo  is  damaged  approximately  ninety  per- 
cent. The  vessel,  however,  makes  her  port  of  destination  and  the 
owners  of  the  cargo  face  a  heavy  loss  which  because  of  the 
F.P.A.E.C.  conditions  cannot  be  recovered  from  the  underwriters, 
none  of  the  excepted  casualties  having  occurred.  However, 
when  approaching  her  berth  the  vessel  is  run  into  by  another 
vessel  but  does  not  suffer  much  damage  through  the  coUision. 
Nevertheless,  the  collision  voids  the  average  warranty  and  the 
cargo  insurance  automatically  becomes  subject  to  average,  and 


CARGO    INSURANCE    AS    AN    UNDERWRITING   PROBLEM  197 

the  underwriters  become  liable  for  the  particular  average  loss 
which  had  previously  occurred  through  the  leaking  of  the  vessel. 
Amended  F.P.A.E.C.  Forms. — These  two  cases  will  demon- 
strate that  the  use  of  the  F.P.A.E.C.  clause  introduces  an  element 
of  speculation  into  marine  insurance  transactions.  In  order  to 
avoid  the  consequences  of  the  legal  interpretation  which  was 
given  to  this  clause,  amendments  have  been  made  from  time  to 
time  in  its  wording  in  order  to  lessen  the  possibility  of  claims 
being  made  which  are  not  proximately  caused  by  casualty,  and  to 
provide  for  the  payment  of  losses,  which,  while  fortuitous  in 
their  nature  and  not  in  any  way  caused  by  the  inherent  qualities 
of  the  articles  themselves,  would  not  be  recoverable  under  the 
original  F.P.A.E.C.  form.  In  the  last  revision  of  the  Institute 
(London)  Cargo  Clauses  (F.P.A.)  1917  in  paragraph  number  8 
we  find  the  F.P.A.  clause  expressed  in  the  following  words,  viz.: 

"  Warranted  free  from  particular  average  unless  the  vessel  or  craft  be 
stranded,  sunk,  or  burnt,  but  the  Assurers  are  to  pay  the  insured  value 
of  any  package  or  packages  which  may  be  totally  lost  in  loading,  tran- 
shipment or  discharge,  also  any  loss  of  or  damage  to  the  interest  insured 
which  may  reasonably  be  attributed  to  fire,  collision  or  contact  of  the 
vessel  and/or  craft,  and/or  conveyance  with  any  external  substance 
(ice  included)  other  than  water,  or  to  discharge  of  cargo  at  a  port 
of  distress,  also  to  pay  landing,  warehousing,  forwarding  and  special 
charges  if  incurred." 

Stranding  and  Sinking. — Many  cases  have  come  into  the 
courts  for  the  interpretation  of  the  meaning  of  the  words 
"stranded,  sunk  or  burnt"  as  used  in  the  F.P.A.  clause,  in 
order  to  determine  the  degree  of  casualty  necessary  to  nullify 
the  free  of  average  warranty.  The  consensus  of  these  deci- 
sions seems  to  be  that  to  constitute  a  stranding  there  must  be 
such  a  taking  of  the  bottom  as  results  in  the  complete  stoppage 
of  the  movement  of  the  vessel,  and  not  merely  what  is  known  as 
"touch-and-go,"  where  the  vessel  comes  in  contact  with  the 
bottom  but  does  not  actually  lose  her  momentum,  merely  sliding 
off  the  obstruction  and  proceeding  on  her  course.  So  a  sinking 
must  be  an  actual  immersion  of  the  vessel  in  the  water,  although 
it  is  not  necessary  that  the  vessel  sink  to  a  point  where  it  is 
completely  submerged  or  where  it  rests  on  the  ocean  bed. 
For  example,  a  vessel  laden  with  lumber  will  sink,  but  will  not  go 


P.IS  .l/.l/.'/.V/-;  INSURANCE 

(()  (he  l)oltoni,  rciuainiiif;  ])ar(ially  inuiicrscd  and  i)artly  out.  of 
Iho  water  because  of  bcin^  in  a  water-logged  condition.  Such 
partial  iinincrsion,  however,  is  a  siidciiig. 

Burning  and  Collision. — Burning  has  also  been  a  mooted  ques- 
tion and  it  has  been  decided  that  in  order  to  have  such  a  burning 
as  will  void  the  free  of  average  warranty  there  must  be  an  actual 
destruction  of  a  portion  of  the  ship.  It  may  happen  that  a  severe 
fire  occurs  in  the  cargo  without  doing  any  material  damage  to  the 
sliip  itself,  so  that  a  strict  construction  of  the  word  burnt  would 
prevent  the  recovery  of  the  loss  on  cargo.  To  avoid  this  possi- 
bility it  will  be  noticed  that  the  F.P.A.  (1917)  clause  quoted 
above  provides  that  loss  of  or  damage  to  the  interest  insured 
reasonably  attributable  to  fire  is  recoverable.  It  will  also  be 
observed  that  colUsion  is  omitted  in  this  form  from  the  list  of 
excepted  casualties.  Collisions  often  result  in  little  or  no  damage 
to  the  ship  or  cargo,  but  as  already  pointed  out  a  harmless 
collision  might  under  the  original  F.P.A.E.C.  form  admit 
claim  for  prior  or  subsequent  damage  in  no  way  attributable  to 
the  collision.  On  the  other  hand  the  omission  of  this  casualty 
altogether,  might  work  injustice,  in  that  a  collision  while  of  little 
consequence  to  the  ship  itself  might,  through  the  admission  of 
some  water,  result  in  serious  damage  to  the  cargo.  Underwriters 
have,  therefore,  assumed  liability  for  any  loss  or  damage  which 
may  be  reasonably  attributed  to  collision  or  to  contact  of  the 
vessel  wdth  any  external  substance  (ice  included),  other  than 
water;  the  exception  in  regard  to  water  being  made  because  a 
vessel  normally  is  always  in  contact  with  water. 

Other  Casualties. — Furthermore,  packages  are  often  lost  in 
loading,  transhipment  or  discharge,  and  this  risk  is  also  covered, 
notwithstanding  the  free  of  average  warranty.  Liability  is  also 
admitted  for  expenses  which  may  be  incurred  after  the  abandon- 
ment of  the  voyage,  by  the  discharge  of  the  cargo  at  a  port 
of  distress,  or  other  charges  which  may  result  from  the  landing, 
warehousing  and  forwarding  of  the  cargo  as  the  result  of  con- 
ditions which  make  it  impossible  for  the  vessel  to  fulfill  her 
contract  of  carriage  and  yet  have  not  resulted  through  any  of 
the  excepted  casualties. 

Duration  of  Risk. — In  determining  the  rate  of  premium  to 
be  charged  in  cargo  insurance  it  is  also  important  to  consider 


CARGO    INSURANCE   AS    AN    UNDERWRITING   PROBLEM  199 

how  great  is  the  risk  to  be  run  not  only  from  the  geographical 
point  of  view  but  also  from  a  consideration  of  the  length  of  time 
during  which  the  commodity  will  be  at  the  risk  of  the  under- 
writer. This  naturally  leads  to  a  further  consideration  of  the 
warehouse  to  warehouse  clause  which  is  one  cf  the  most  used 
clauses  in  cargo  underwriting.  This  clause  in  the  form  most 
commonly  used,  that  of  the  London  Institute,  reads : 

"Including  (subject  to  the  terms  of  the  policy)  all  risks  covered  by 
this  policy  from  shippers'  or  manufacturers'  warehouse  until  on  board 
the  vessel,  during  transhipment  if  any,  and  from  the  vessel  whilst  on 
quays,  wharves  or  in  sheds  during  the  ordinary  course  of  transit  until 
safely  deposited  in  consignees'  or  other  warehouse  at  destination  named 
in  pohcy." 

This  clause  while  providing  a  broad  form  of  protection  covers 
property  only  while  out  of  the  custody  of  the  owner,  during 
transit  in  the  ordinary  course  from  warehouse  to  warehouse. 
In  the  ordinary  conditions  of  overseas  commerce  this  form  of 
protection  is  usually  sufficient  for  the  assured.  With  the  con- 
gestion which  war  occasions  at  practically  all  ports,  however, 
the  unusual  delay  to  which  shipments  are  subjected  raises  the 
question  of  what  "ordinary  course  of  transit"  as  used  in  the 
warehouse  clause  means.  It  seems  clear  that  these  words  must 
be  interpreted  in  the  light  of  existing  conditions,  "ordinary 
course  of  transit"  during  a  state  of  war  having  a  totally  different 
meaning  from  what  it  has  under  normal  conditions.  On  the 
other  hand  it  cannot  be  presumed  that  if  shipments  are  left  on  the 
wharf  week  after  week  while  steamers  sail  for  the  port  of  destina- 
tion of  the  goods,  that  the  goods  are  still  in  ordinary  course  of 
transit,  notwithstanding  the  fact  that  the  unusual  delay  occa- 
sioned is  without  the  knowledge  or  consent  of  the  owners  of 
the  goods. 

Rate  of  Premium  Based  on  Ordinary  Transit. — The  under- 
writer in  fixing  the  rate  of  premium  is  presumed  to  have  made 
the  charge  adequate  to  cover  usual  delay  under  existing  con- 
ditions, but  should  not  and  will  not  be  held  to  have  provided 
protection  if  the  usual  delay  is  converted  into  unusual  detention. 
Banks  and  shippers  may  require  additional  protection  to  provide 
for  the  contingency  of  unusual  delay  and  various  clauses  are 


200  MAh'lXI-    IXSIhWXCE 

ilevised  extending  the  warehouse  to  warehouse  chiuse,  to  cover 
such  a  conlingency.  The  great  difficulty  from  the  viewpoint 
of  the  underwriter,  is  to  cstabhsh  some  basis  for  determining  the 
premium  to  be  charged,  which  will  be  adequate  to  compensate 
him  for  the  increased  hazard  assumed  and  yet  will  not  involve 
a  system  for  calculating  the  time  of  detention  so  expensive  in 
operation  as  to  cost  more  than  (he  additional  premium  charged. 
Cargo  Clauses  are  Numberless. — The  clauses  used  in  connec- 
tion with  cargo  insurance  are  numberless,  referring  as  they  do  to 
every  possiI)le  phase  of  the  cargo  underwriting  problem.  A  few, 
however,  such  as  the  warehouse  to  warehouse  clause,  the  craft 
clause  providing  for  lighterage  risks  from  the  shore  to  the  vessel 
and  from  the  vessel  to  the  shore  and  the  deviation  clause  to  which 
reference  was  made  in  an  earlier  chapter  are  common  to  most 
cargo  insurances.  Other  clauses  have  been  devised  primarily 
for  special  trades  or  for  use  in  relation  to  certain  ocean  routes. 
A  few  of  these  clauses  will  be  considered  in  the  following  chapter 
in  connection  with  the  discussion  of  insurance  on  specific 
commodities. 


CHAPTER  12 

SPECIFIC  CARGO  RISKS 

'  Full  Cargo  Business. — To  enumerate  and  classify,  from  an 
underwriting  standpoint,  all  the  commodities  which  are  the  sub- 
ject of  cargo  insurance  would  be  a  well-nigh  endless  task  and 
one  far  beyond  the  scope  of  this  treatise.  It  is  possible,  however, 
to  indicate  several  broad  headings  under  which  commodities 
may  be  grouped  and  to  give  a  brief  description  of  the  forms  of 
insurance  granted  on  some  of  the  principal  commodities  in  each 
group.  Before  doing  this,  however,  it  will  be  well  to  give  some 
consideration  to  the  peculiar  hazards  in  connection  Avith  full 
cargo  business.  A  full  cargo  may  consist  of  any  kind  of  goods, 
although  it  is  more  usual  to  find  vessels  so  loaded  with  raw  or 
bulk  commodities. 

A  Seasonal  Business — Congestion  Hazard. — As  a  rule,  full 
cargo  business  is  seasonal  and  is  confined  at  any  given  season 
to  relatively  few  ports.  For  instance  in  the  movement  of  the 
United  States  cotton  crop,  the  Southern  ports  of  the  country 
are  involved  principally  during  the  latter  part  of  each  year. 
The  business  centering  in  a  few  ports  near  the  cotton  producing 
areas,  leads  to  congestion  and  the  wharves  and  the  streets  in 
the  neighborhood  of  the  wharfs  become  filled  with  cotton, 
inadequately  protected  from  the  elements  and  subject  to  con- 
flagration hazard.  Such  congestion,  while  not  pecuhar  to  the 
cotton  business,  becomes  more  important  in  the  movement  of  this 
crop,  because  it  is  customary  for  the  marine  underwriter  to 
assume  the  interior  fire  and  transit  risks  in  the  insurance  of 
raw  cotton.  Similar  congested  conditions  will  be  found  in  the 
movement  of  raw  sugar,  coffee,  grain,  hemp  and  burlaps,  but  the 
congestion  risks  in  these  trades  is  apt  to  result  in  losses  largely 
due  to  hasty  and  careless  handling  which  causes  damage  to  the 
commodity  itself.  Thus  vessels  may  load  in  the  rain  causing 
to  a  perishable  cargo  damage  for  which  an  underwriter  will 
have  difficulty  denying  liability  if  the  insurance  is  su])ject  to 
average.     An  underwriter  ordinarily  is  not  liable  for  fresh  water 

201 


202  MAh-IXh'  IXSrh'AXCl': 

(laina^c,  1)U(  i(  is  not  always  possible  to  prove  that  (Uunagc 
found  on  floods  is  due  to  fresh  and  not  to  sea  water. 

Overloading  of  Vessels. — In  these  seasonal  trades  there  is 
usually  a  scarcity  of  tonnage  with  the  inevitable  result  that  there 
is  a  tendency  to  overload  vessels,  unless  careful  inspection  is 
maintained  by  underwriters.  The  question  of  loading,  therefore, 
assumes  great  importance  and  underwriters'  boards  have  laid 
down  rules  in  certain  cases  prescribing  approved  methods 
of  stowage,  to  which  vessels  must  conform  in  order  to  obtain 
insurance.  This  is  peculiarly  true  in  the  grain  business.  This 
commodity,  because  of  its  tendency  to  shift,  becomes  an  extra 
hazardous  risk  unless  proper  stowage  is  obtained.  In  the  case 
of  lighter  cargoes  where  it  is  impossible  to  overload  a  vessel  with 
the  commodity  itself,  a  condition  of  instability  may  result  owing 
to  the  vessel  being  top  heavy.  It  is,  therefore,  usual  to  carry 
in  the  bottom  of  the  holds  of  such  vessels,  ore  or  metals  or  other 
heavy  materials  in  order  to  lower  the  center  of  gravity  and  thus 
increase  the  meta-center  height.  There  is  also  the  tendency 
to  carry  on  such  vessels,  heavy  deck  loads  of  timber,  or  it  may 
be  high  deck  loads  of  the  commodity  itself,  this  condition  being 
especially  true  in  the  raw  cotton  trade.  These  deck  cargoes  are 
often  poorly  stowed,  or  improperly  secured,  proving  a  menace 
to  the  under  deck  cargo  because  of  the  fact  that  part  of  the  deck 
load  may  be  lost,  causing  the  vessel  to  get  out  of  trim.  Such 
cargoes  greatly  increase  the  fire  hazard,  owing  to  the  difficulty 
of  gaining  access  to  the  under  deck  cargo. 

Unfit  Vessels  Used  to  Carry  Full  Cargoes. — The  scarcity  of 
tonnage  in  these  seasonal  trades  also  calls  into  service  many 
vessels  not  fitted  for  the  cargoes  to  be  carried.  We  thus  find 
that  in  the  raw  sugar  trade  from  Cuba  to  the  United  States  and  in 
the  export  grain  trade,  vessels  physically  unfit  for  carrying  these 
exceedingly  perishable  commodities  are  offered  for  charter. 
Such  vessels,  either  because  of  their  design  or  because  of  their 
age  and  physical  condition  are  not  fit  to  withstand  the  hazards 
of  the  trade.  The  result  is  that  often  such  vessels,  encoun- 
tering heavy  weather  will  leak,  causing  enormous  damage  to 
perishable  cargoes.  The  effect  of  water  on  these  perishable  bulk 
cargoes,  whether  it  obtains  entrance  because  of  the  weakness  of 
the  ship,  or  through  a  casualty,  is  very  great.     These  cargoes, 


SPECIFIC  CARGO  RISKS  203 

consisting  as  they  usually  do  of  vegetable  products,  may,  as  in 
the  case  of  sugar,  rapidly  dissolve,  or  as  in  the  case  of  grain  swell 
and  tend  to  burst  the  ship,  thus  causing  further  damage  and 
perhaps  the  loss  of  the  whole  venture.  Sometimes  the  tendency 
is  to  quickly  soften  and  rot  and  become  unsalable,  as  is  the  case 
with  flaxseed  and  beans  and  many  of  the  vegetable  fibers. 

Fire  Hazard.^ — ^The  fire  hazard  is  of  no  little  importance  in  the 
full  cargo  business,  especially  in  connection  with  commodities 
which  are  apt  to  heat.  Proper  ventilation  is,  therefore,  of  the 
utmost  importance  in  these  trades.  Soft  coal  when  carried  on 
long  voyages  is  very  apt  to  take  fire  unless  the  holds  can  be  cooled 
during  the  voyage.  This  can  most  easily  be  done  by  removing 
the  hatches  during  fine  weather.  However,  if  the  cargo  is 
already  on  fire  and  smoldering,  the  admission  of  fresh  air  with 
the  opening  of  the  hatches  will  probably  result  in  the  cargo 
bursting  into  flames.  In  the  case  of  vegetable  fibers,  which  ordi- 
narily are  carried  long  distances  through  the  torrid  zones,  the 
danger  of  fire  from  improperly  cured  fiber  is  very  great.  The 
fire  hazard  is  also  serious  in  the  case  of  cotton.  If  cotton  is 
shipped  wet  it  may  heat  in  the  hold  and  spontaneous  combustion 
result,  but  more  often  cotton  fires,  which  are  very  common  on 
shipboard,  are  due  to  sparks  lodging  in  the  bales  during  loading, 
caused  it  may  be  by  stevedores  smoking  or  by  the  hitting  of  the 
metal  straps  of  the  bales  on  the  steel  hatch  combings  during  the 
stowage  of  the  cotton.  There  being  much  air  in  a  cotton  bale 
the  spark  will  live  for  many  days,  gradually  eating  its  way  into 
the  bale  and  eventually  causing  the  bale  to  take  fire,  it  may  be 
after  the  vessel  is  many  days  on  her  voyage. 

Classes  of  Cargo. — Cargo  insurance  may  be  broadly  divided 
into  classes,  each  class  containing  those  commodities  which  have 
a  common  point  of  origin.  Thus  we  may  group  together  the 
products  of  agriculture,  of  animals,  of  forests,  of  mines,  or  of 
manufactures.  It  does  not  follow,  however,  that  because  two 
commodities  fall  into  the  same  class  the  risk  on  each  is  the  same 
from  an  underwriting  standpoint.  It  will  be  of  interest  to  briefly 
consider  some  of  the  commodities  in  each  group. 

Products  of  Agriculture. — The  products  of  agriculture,  both 
in  bulk  and  in  value,  form  one  of  the  largest  classes  of  cargo  risks. 
This  is  true  in  large  part  l)ocause  the  raw  commodity  is  grown 


204  MAh'IXh:  IXSl^RANCE 

principally  in  countries  or  in  sections  of  a  country  which  are  not 
given  to  nianufactiiiing.  The  raw  product  must  he  transported 
from  (he  jilacc  of  origin  to  Iho  jilaoo  of  manufacture  or  consump- 
tion. This  fact,  coupled  with  the  nature  of  the  commodity  itself 
determines  in  large  measure  the  conditions  under  which  insurance 
jirotcction  is  afforded. 

Sweat  Damage.  Skimmings  Clause. — Cocoa  and  coffee 
beans  constitute  a  considerable  portion  of  the  exports  of  some 
tropical  regions.  Both  commodities  are  easily  damaged  and  by 
preference  are  insured  l^y  underwriters  on  free  of  particular  aver- 
age terms.  However,  their  susceptibility  to  damage  through  no 
fault  of  packing,  but  because  of  their  transfer  ])y  water  from  a 
warm  to  a  cool  climate,  has  led  to  the  granting  of  insurance 
against  what  is  known  as  sweat  damage.  There  is  always  a 
certain  amount  of  moisture  in  the  hold  of  a  vessel.  The  vessel 
loads  her  cargo  of  cocoa  or  coffee  in  bags  at  a  tropical  port,  closes 
her  hatches  and  proceeds  on  the  voyage.  As  the  cooler  waters 
of  the  temperate  zone  are  reached  the  sides  of  the  ship  cool 
causing  condensation  of  the  moisture  in  the  hold  and,  if  the  cargo 
is  not  properly  dunnaged  and  protected,  water  will  reach  it  caus- 
ing sweat  damage,  which,  under  extreme  conditions,  may  affect 
a  considerable  portion  of  the  cargo.  It  is  also  usual  to  insure 
cocoa  and  coffee  under  what  is  called  the  "Skimmings  clause." 
In  this  clause  the  underwriter  assumes  liability  for  all  partial 
loss  through  the  bags  being  wet  or  stained  by  salt  water,  the 
coffee  or  cocoa  affected  being  slammed  off  and  the  damage 
assessed  on  the  portion  so  segregated. 

Raw  Cotton. — Reference  has  already  been  made  to  raw  cotton. 
This  commodity  is  grown  in  our  own  Southern  States,  in  China, 
Egypt,  India,  Peru  and  in  limited  quantities  in  some  other  parts 
of  the  world.  The  fiber  is  baled,  but  the  condition  of  the  bale 
varies  in.  different  countries,  the  wrapping  of  the  American  cotton 
bale  being  but  another  example  of  inexcusable  waste  on  the  part 
of  the  American  people.  So  poorly  is  American  cotton  baled 
that  the  delicate  staple  is  not  sufficiently  protected  from  the 
elements  and  from  the  soil  and  stain  which  inevitably  accumulates 
during  the  handling  and  transit  of  the  commodity.  The  result 
is  that  the  bales  arrive  abroad  badly  damaged  through  these 
causes  and   the  consignees  claim   allowance  for  the  damaged 


SPECIFIC  CARCIO  RISKS  205 

staple.  Unfortunately  underwriters  have  assumed  liability  for 
this  damage,  called  country  damage,  with  the  result  that  there 
has  not  been  the  same  incentive  to  better  bale  protection  and 
more  careful  handling  that  there  would  have  been  had  the  loss 
fallen  on  the  shippers  or  consignees.  Furthermore,  in  some  Euro- 
pean cities  quite  a  thriving  business  has  developed  in  the  adjust- 
ment of  country  damage  claims  and  in  the  reconditioning  of  the 
bales,  so  that  no  great  degree  of  pressure  has  been  exerted  on  the 
shippers  to  provide  a  better  package.  At  the  opening  of  a  new 
world  era,  when  conservation  is  the  ringing  cry  in  every  line  of 
endeavor  it  would  seem  that  efforts  could  successfully  be  made 
to  end  an  abuse  which  is  a  reflection  on  the  business  methods  of 
the  American  people.  It  is  true  that  a  measure  of  progress  has 
been  made  in  the  better  compression  of  the  cotton  under  the 
Webb  system,  but  much  remains  to  be  done  before  a  package  is 
produced  that  can  compare  favorably  with  the  Egyptian  cotton 
bale.  Underwriters  have  also  endeavored  to  remedy  this  con- 
dition by  agreeing  to  return  part  of  the  premium  charged  for 
covering  country  damage  if  the  claims  for  this  character  of  loss 
should  be  reduced  below  a  certain  percentage  of  the  premium 
charged.  This  effort  has  not  been  without  success  as  many 
merchants  have  been  induced,  through  the  saving  in  premium 
effected,  to  use  greater  care  in  the  protection  of  the  bales. 

Schedule  Rating. — The  insurance  of  cotton  is  pecuhar  not  only 
in  that  country  damage  losses  are  covered,  but  also  in  that 
the  insurance  covers  the  ginned  cotton  from  the  time  it  is  weighed 
at  the  towns  adjacent  to  the  farms  where  the  staple  is  grown. 
The  insurance  protection  continues  from  this  point  until  the 
cotton  is  delivered  at  the  warehouse  or  mill  of  the  consignee  in 
Europe,  China,  Japan,  India,  or  wherever  the  raw  product  is 
manufactured  into  cloth  or  other  cotton  products.  The  insured 
cotton  is  not  in  continuous  transit.  It  is  carried  from  places  of 
purchase  to  concentration  points  where  the  bale  is  recompressed 
and  reconditioned  and  the  cotton-  is  sorted  into  the  various 
grades  and  made  into  lots  to  fill  the  requirements  of  sales  made 
by  the  owners.  Schedule  rating  so  common  in  fire  insurance 
and  so  unusual  in  marine  insurance  finds  its  nearest  approach 
in  the  rate  tariffs  in  use  in  the  raw  cotton  trade.  The  various 
factors  of   fire  risk    in    different    locations,    flood   risk,    transit 

15 


200  MARINE  IIVSURANCE 

risk  l)y  niil,  by  sletiiiicr  and  by  ligiitcr,  also  country  damage 
risk  and  special  port  risks  are  all  factors  in  determining  the  rate 
chargiHb 

Grain  Cargoes. — The  insurance  of  grain  cargoes  presents  one 
of  the  most  interesting  and  most  hazardous  classes  of  risks  in 
connection  with  cargo  underwriting.  Grain  Ix'ing  small  in  size 
and  of  smooth  skin,  has  a  tendency  to  flow  and  no  little  difficulty 
is  experienced  in  stowing  such  cargoes  so  that  the  vessel  will  be 
stable  when  it  sails  and  continue  in  that  condition  regardless  of 
the  weather  encountered  at  sea.  Various  sets  of  rules  have  been 
formulated  by  government  boards  and  by  underwriters'  boards, 
all  having  as  their  aim  the  fitting  of  vessels  internally  so  that 
grain  cargoes  cannot  shift.  In  general  these  rules  provide  for 
shifting  boards,  a  temporary  longitudinal  bulkhead  so  fitted  as  to 
divide  each  hold  into  two  smaller  holds.  The  grain  is  fed  into 
the  holds,  properly  spread,  and  boards  are  laid  upon  the  grain 
and  on  top  of  these  are  placed  several  tiers  of  grain  in  bags  to 
prevent  the  movement  of  the  cargo.  In  the  case  of  dou]>le-deck 
vessels  wing  feeders  are  often  required,  these  feeders  being  bins 
of  considerable  size,  which  with  the  rolling  of  the  vessel  and  the 
possible  movement  of  the  cargo,  feed  down  into  the  hold 
grain  which  will  take  the  place  of  that  shifted  and  restore  the 
vessel  to  a  condition  of  stability.  Other  rules  are  made  respect- 
ing the  loading  of  the  old  style  self-trimming  vessels,  the  turret 
and  the  trunk  deck  types.  A  perusal  of  these  rules  will  throw 
much  light  on  the  difficulties  encountered  in  the  proper  stowage 
of  bulk  gi'ain  cargoes. 

Standard  Clauses. — Grain,  being  a  very  perishable  commodity, 
is  usually  insured  on  free  of  average  terms.  When  shipped  in 
bags  and  thus  in  a  measure  protected  it  may  be  insured  subject 
to  average.  The  subject  of  grain  insurance  in  the  export  trade 
is  so  important  that  the  London  and  American  Institutes  acting 
in  conjunction  with  the  London  Corn  Trade  Association 
have  promulgated  standard -clauses  under  which  export  grain, 
from  the  United  States  to  the  United  Kingdom  and  the  Conti- 
nent of  Europe,  is  insured.  The  principal  part  of  this  clause 
relates  to  the  subject  of  average,  the  protection  afforded  by  the 
original  free  of  particular  average  English  conditions  clause 
having  been  greatly  broadened. 


SPECIFIC  CARGO  RISKS  207 

Hard  and  Soft  Grains. — It  is  important  to  notice  that  from  the 
underwriting  viewpoint  some  grains  are  more  hazardous  than 
others.  The  harder  cereals,  such  as  wheat  and  rye,  are  much 
better  risks  than  are  corn  and  flaxseed,  which  because  of  their 
softness  will,  in  the  event  of  damage,  rapidly  spoil  and  become 
worthless.  It  is,  in  fact,  exceedingly  difficult  to  ship  corn  at  cer- 
tain seasons  of  the  year  without  the  cargo  arriving  at  desti- 
nation in  a  very  deteriorated  condition.  While  it  is  true  that 
grain  is  insured  on  free  of  average  terms,  it  is  equally  true  that  if 
one  of  the  excepted  casualties  occurs  and  the  underwriter  becomes 
liable  for  average  he  is  then  affected  by  all  the  inherent  qualities 
of  the  commodity.  It  also  happens  in  the  case  of  some  grains, 
such  as  flaxseed,  for  which  there  is  ordinarily  a  limited  market, 
that  a  comparatively  slight  damage  the  outcome  of  a  casualty, 
may  result  in  considerable  loss  owing  to  the  lack  of  a  market 
for  this  particular  grain  at  the  port  of  refuge.  It  is  often  not 
possible  to  either  recondition  grain  at  a  port  of  refuge  or  carry 
the  cargo  forward  to  destination  in  its  damaged  condition  and 
a  forced  sale  is  necessary. 

Vegetable  Fibers.  —  The  fibrous  commodities,  of  which  hemp, 
sisal  and  jute  comprise  the  chief  examples,  are  also  exceedingly 
perishable  in  their  nature  and  are  usually  insured  free  of  average. 
In  the  jute  trade  special  clauses  have  been  promulgated  by  mu- 
tual agreement  between  the  merchants  and  the  underwriters. 
Fire  is  one  of  the  chief  hazards  encountered  in  this  trade,  it  often 
being  of  spontaneous  origin.  This  fact  is  difficult  to  prove  with 
the  result  that  the  loss  usually  falls  on  the  underwriter.  When 
jute  takes  fire,  the  blaze  is  exceedingly  difficult  to  extinguish,  as 
the  fire  smolders,  and  after  it  is  apparently  out,  the  jute  will 
again  burst  into  flame. 

Raw  Sugar. — Raw  sugar  is  also  a  very  perishable  cargo  but  the 
principal  cause  of  loss  with  this  commodity  is  water.  Being 
very  soluble  the  admission  of  water  to  the  hold  will  quickly  re- 
sult in  serious  damage.  Sugar  is  usually  insured  subject  to 
average,  the  minimum  average  payable  depending  in  large 
measure  on  the  length  of  risk.  In  the  Cuban-American  sugar 
trade  the  franchise  is  very  low,  the  underwriter  assuming  hability 
for  loss  amounting  to  $100,  whereas  in  the  Java-American  trade 
the  underwriter  may  insist  on  a  minimum  average  of  $750.     In 


208  MARINE  INSURANCE 

the  C'ul)an  and  Torto  liican  sugar  trades  which  are  the  most 
important  in  the  American  market,  cargoes  are  insured  subject 
to  the  Loss  in  AVci{!;lit  or  the  Loss  in  Test  clause  or  both.  Under 
the  Loss  in  ^^'cight  clause  the  under\vriter  adjusts  the  loss  con- 
sidering merely  the  actual  reduction  in  weight  as  shown  by  the 
invoice  weights  and  the  outturn  weights,  an  allowance  of  two  per- 
cent being  made  for  the  absorption  of  moistm-e.  On  the  other 
hand  in  an  adjustment  under  the  Loss  in  Test  clause  the  percent- 
age of  damage  sufTcrcd  as  shown  by  comparing  the  sound  and 
damaged  values,  is  applied  to  the  insured  value  of  the  damaged 
sugar  and  thus  the  loss  is  determined. 

Fruits  and  Vegetables. — There  are  many  other  products  of 
agriculture,  such  as  fresh  fruits  and  vegetables  for  instance,  which 
are  a  considerable  item  in  marine  insurance.  These  commodities 
are  usually  of  so  perishable  a  nature  that  the}"  are  insured  free 
of  particular  average  absolutely,  although  when  shipped  in  re- 
frigerated compartments  it  is  usual  to  cover  partial  loss  in  the 
event  of  the  breakdown  of  the  refrigerating  apparatus,  pro- 
viding such  breakdown  continues  a  certain  number  of  days  or 
hours.  The  transportation  of  apples  from  America  to  the  United 
Kingdom  is  one  phase  of  the  fruit  trade  which  involves  enormous 
values  when  trans-Atlantic  trade  is  normal.  Likewise,  the  car 
riages  of  bananas,  pineapples  and  other  tropical  fruits  from  the 
West  Indies  and  Central  America  to  United  States  ports  is  so 
important  that  lines  of  steamers  especially  designed  for  this  trade 
are,  dm-ing  ordinary  times,  in  constant  operation  between  these 
ports. 

Products  of  Animals. — The  insurance  of  animal  products  is  an 
important  feature  of  marine  underwriting.  With  the  discovery 
of  improved  methods  for  the  curing  and  preserving  of  animal 
products  and  with  the  perfecting  of  refrigerating  machinery 
which  permits  the  carriage  of  fresh  and  frozen  meats  for  thousands 
of  miles  in  perfect  condition,  a  new  and  important  field  for  marine 
underwriting  came  into  being.  The  insurance  of  the  cured  and 
preserved  animal  products  is  not  an  extra  hazardous  class  of  risk, 
as  the  commodity  is  usually  well  packed  and  not  easily  dam- 
aged and  is  accordingly  insured  on  very  favorable  terms.  In  fact 
packing-house  products,  excluding  fresh  and  frozen  meats  and 
the  by-products  of  the  packing  plants,  are  usually  insured  subject 


SPECIFIC  CARGO  RISKS  209 

to  three  percent  average  on  each  package.  Some  of  the  animal 
oils  and  greases  wliich  under  moderate  heat  turn  into  oil  are 
very  hazardous,  if  the  risk  of  leakage  is  covered.  The  degree 
of  risk  involved  in  leakage  insurance  is  dependent  largely  on  the 
season  of  the  year  and  the  normal  temperature  of  the  route 
over  which  the  cargo  will  pass  and  of  the  port  of  destination. 
The  more  heat  to  which  these  oils  and  greases  are  subjected  the 
more  fluid  they  become  and  the  greater  the  likeHhood  of  leakage 
resulting. 

Canned  and  Bottled  Goods.  Dairy  Products, — Canned  and 
bottled  goods  whether  vegetable  or  animal  products  are  ordi- 
narily insured  free  of  average,  partially  because  of  the  effect  of 
moisture  on  the  tin  container  and  partially  because  of  the  expense 
of  reconditioning  the  container,  whether  tin  or  glass,  in  the  event 
of  damage.  Relabeling  is  usually  necessary  even  if  the  damage  is 
slight,  resulting  in  expense  oftentimes  out  of  all  proportion  to  the 
actual  damage  suffered.  Dairy  products,  particularly  butter 
and  cheese  are  also  insured  free  of  average  because  of  their  sus- 
ceptibility to  damage  and  their  tendency  to  spoil  if  slightly 
damaged,  while  eggs  are  usually  insured  free  of  claim  for  loss  by 
breakage,  and  otherwise  free  of  particular  average. 

Refrigerated  Goods. — Fresh  and  frozen  meats  when  insured 
subject  to  average  and  subject  to  loss  occasioned  by  the  break- 
down of  the  refrigerating  apparatus  present  one  of  the  most 
hazardous  risks  in  the  whole  realm  of  cargo  insurance.  The 
industry  is  of  the  greatest  importance,  especially  in  connection 
with  the  importation  of  these  products  into  the  United  Kingdom 
from  the  United  States,  South  America,  South  Africa  and  Aus- 
tralia. When  it  is  considered  that  a  commodity  that  will 
quickly  spoil  has  to  be  carried  a  distance  of  from  three  to  ten 
thousand  miles  over  routes  that  in  many  cases  pass  through 
the  very  hottest  portions  of  the  ocean,  some  conception  will  be 
gained  of  the  hazards  involved  in  this  form  of  insurance.  Not 
many  years  ago  a  fine  refrigerator  steamer  loaded  with  a  valuable 
cargo  of  fresh  and  frozen  meats  took  fire  while  on  the  way  from 
Australia  to  the  United  Kingdom  and  was  compelled  to  enter 
Dakar,  West  Africa,  a  port  very  nearly  on  the  equator.  The  fire 
was  extinguished  but  the  refrigerating  apparatus  in  one  hold 
containing  frozen  mutton  was  so  damaged  that  it  was  useless. 


210  ^fARl.\K  IXSrh'.WCE 

riic  luulloii  ill  lliis  hold  (jtiickly  spdilcd  uiid  had  to  he  jctlisoiied 
iv.siiltinji;  ill  a  vciy  serious  loss  to  the  underwriters. 

Dressed  Meats. — Dressed  meats  are  usually  shipped  either 
chillt'd  or  fi<)/(Mi.  ( 'hilled  meat  is  kept  at  a  temperature;  a])proxi- 
matiiig  40°,  cool  enough  to  prevent  decomposition  and  yet  not 
cold  enough  to  freeze  the  meat.  Frozen  meat  on  the  other  hand 
is  frozen  solid  before  shipment  and  is  kept  at  a  temperature  of 
about  28°.  In  the  event  of  breakdown  of  the  refrigerating  plant 
tiie  spoilage  in  the  case  of  frozen  meat  is  much  more  rapid  than  it 
is  with  chilled  meat.  Ordinarily  beef  is  shipped  chilled,  while 
mutton,  poultry,  rabbits  and  the  smaller  pieces  of  meat  are 
sliipped  frozen.  The  hazard  of  fresh  and  frozen  meat  insurance 
is  further  increased  in  many  cases  by  the  assumption  of  the  risk 
from  the  moment  the  meat  enters  the  cooling  or  freezing  chambers 
of  the  packing  plant  and  continues  during  transportation  and  for 
a  period  not  exceeding  sixty  days  after  arrival  at  destination. 
The  risk  prior  to  shipment  on  the  ocean  going  steamer  is  also 
limited  to  sixty  days.  This  is  the  broadest  form  of  cover  granted 
in  this  trade,  though  there  are  many  lesser  forms  of  insurance  in 
use.  In  fact  the  London  Institute  has  promulgated  at  least 
twenty  different  clauses  relating  to  the  insurance  of  fresh  and 
frozen  meats.  The  insurance  of  these  commodities  is  practically 
controlled  by  the  London  market,  as  the  United  Kingdom  and  the 
Continental  countries  are  more  interested  in  this  business,  since 
the  Linited  States  is  self-supporting  in  the  matter  of  meat  supplies. 
Shortly  before  the  commencement  of  the  World  War,  however, 
efforts  were  made  to  import  fresh  and  frozen  meats  from  the 
Argentine  and  much  of  the  insurance  on  these  shipments  was 
placed  in  the  American  market,  though  it  was  generally  insured 
in  accortlaiice  with  the  London  Institute  Clauses. 

Livestock. — The  shipment  of  live  stock  is  in  normal  times  a 
subject  of  considerable  importance  in  the  insurance  market. 
In  this  trade  several  kinds  of  insurance  are  afforded  ranging  from 
that  which  assumes  liability  for  only  the  absolute  total  loss  of 
the  vessel  and  her  cargo  including  the  livestock  insured,  to  in- 
surance under  full  mortality  conditions  where  the  underwriter 
assumes  liability  for  the  death  of  the  animals,  however  caused,  pro- 
vided they  were  shipped  in  sound  and  healthy  condition.  Such 
insurance  may  terminate  on  tlie  deposit  of  the  animals  on  shore. 


SPECIFIC  CARGO  RISKS  211 

no  liability  being  assumed  for  any  animal  walking  ashore  re- 
gardless of  its  physical  condition  or  the  risk  may  continue  for  a 
fixed  period,  say  five  days  after  the  animals  are  landed.  During 
this  period  animals  greatly  affected  by  the  sea  voyage  often  die 
and  the  underwriter  assumes  liabiHty  for  this  loss.  The  degree 
of  hazard  in  the  insurance  of  livestock  is  dependent  largely  on  the 
nature  and  temperament  of  the  animals.  Thus  sheep  are  more 
susceptible  to  pneumonia  than  are  cattle,  this  disease  often  being 
the  cause  of  death  during  transit.  Horses  being  more  high  spir- 
ited than  cattle  often  become  terrified  in  a  storm,  doing  injury 
to  themselves  or  to  other  animals.  Mules  on  the  other  hand 
being  phlegmatic  in  temperament  and  not  readily  susceptible 
to  disease  are  in  this  very  hazardous  class  comparatively  a  safe 
risk. 

Hides  and  Skins. — The  shipment  of  hides  and  skins  is  a  very 
important  trade  in  the  products  of  animals  and  is  very  hazardous 
in  its  nature.  Hides  and  skins  are  usually  shipped  in  a  partially 
finished  state,  that  is  they  are  not  processed  to  the  point  where 
they  are  ready  for  use  in  the  industries.  Ordinarily  two  methods 
of  preparation  are  used  in  preparing  the  raw  material  for  ship- 
ment. The  hides  and  skins  may  be  cured  and  dried,  tied  into 
bales  or  bundles  and  shipped,  or  they  may  be  pickled  and  shipped 
in  casks.  Under  either  method  an  extra  hazardous  commodity 
is  offered  for  insurance,  for  in  the  case  of  the  wet  salted  skins  if 
the  brine  runs  off  they  will  rapidly  deteriorate,  while  if  the  dried 
hides  are  wet  they  will  quickly  rot.  In  the  event  of  a  casualty  the 
loss  is  usually  large  and  if  the  disaster  happens  far  from  a  market 
or  from  a  place  where  the  commodity  can  be  reconditioned,  the 
danger  of  a  total  loss  is  great.  Furs  are  also  a  hazardous  cargo, 
but  because  of  their  greater  value  they  are  more  carefully  packed 
and  are  less  apt  to  sustain  damage. 

Raw  Silk. — Before  passing  from  the  consideration  of  the 
products  of  animals  mention  may  be  made  of  raw  silk,  a  com- 
modity because  of  its  high  value  furnishing  no  little  volume  of 
insurance.  Its  great  value  has,  however,  resulted  in  this  com- 
modity being  so  finely  packed  and  so  carefully  handled  in  ship- 
ment that  it  is  one  of  the  best  risks  in  the  whole  field  of  marine 
underwriting.  Although  very  susceptible  to  injury,  it  is  so 
packed  that  it   cannot  be  damaged  readily,   unless  a  serious 


212  MMil.\h'  I.\Sl/lfA.\('K 

cjisualty  occurs.  It  is  usually  shipped  in  well  prepared  bales  or 
may  be  imported  in  tin-lined  cases  and  is  usually  carried  on  the 
very  finest  vessels  operating  from  the  silk  ports. 

Products  of  the  Forest. — Among  the  jiroducts  of  the  forest 
rubber  and  gum  take  a  leading  place.  These  commodities  rank 
high  as  desirable  subjects  of  insurance,  being  little  susceptible 
to  damage.  In  the  last  ten  3'cars  the  growth  in  the  shipment 
of  crude  rubber  from  the  tropical  countries  to  the  manufacturing 
centers  of  the  world  has  been  little  short  of  marvelous.  Im- 
proved methods  of  processing  the  crude  rubber  have  permitted 
its  use  in  many  lines  of  industry  and  the  supply  is  hardly  equal 
to  the  demand.  Other  gums  also  form  a  considerable  part 
of  the  commerce  of  certain  ports.  The  shipment  of  rosin  and 
turpentine  is  of  no  little  importance  in  the  trade  of  certain  of 
our  own  Southern  ports. 

Wood  Cargoes. — The  insurance  of  the  products  of  the  forest 
in  the  form  of  logs,  timber  and  lumber  usually  involves  the 
subject  of  on  deck  cargoes.  Ordinarily  these  cargoes  are  light 
and  buoyant  and  in  order  to  get  the  vessel  in  proper  trim  it  is 
necessary  to  carry  part  of  the  cargo  on  deck.  While  the  rough 
1o,t;s  and  large  timbers  are  not  very  susceptible  to  damage,  the 
sawed  and  finished  lumber  may  be  considerably  lessened  in  value 
through  stain  or  through  damage  in  handling.  So,  too,  in  the 
matter  of  salvage,  while  most  of  these  products  wUl  float  and, 
therefore,  cannot  readily  be  lost,  the  expense  of  handling  the 
smaller  pieces  of  finished  lumber  often  makes  salvage  operations 
impracticable.  The  fact  that  these  cargoes  are  carried  on  deck, 
has  an  important  bearing  on  the  risk  as  a  whole,  as  the  shifting  or 
loss  of  a  part  or  the  whole  of  the  deck  cargo  may  result  in  the 
loss  of  the  entire  venture.  The  shipment  of  the  roots  and  bark  of 
forest  trees  is  also  an  important  part  of  overseas  commerce,  these 
commodities  being  extensively  used  in  the  arts,  in  medicine 
and  in  industry,  a  considerable  part  of  our  dyestuffs  being  pro- 
duced from  forest  products. 

Products  of  the  Mines. — The  products  of  mines  afford  two  of 
the  extremes  in  the  degree  of  risk  which  they  offer  to  the  under- 
writer. Metals  such  as  copper  and  tin  in  pigs  stand  at  the 
head  of  the  list  of  commodities  which  offer  little  or  no  risk  except 
that  of  total  loss,  while  salt  is  about  as  poor  a  subject  of  insurance 


SPECIFIC  CARdO  RISKS  213 

as  the  whole  field  affords.  Here  again  the  nature  of  the  com- 
modity is  the  important  factor,  soluble  minerals  being  bad  risks 
while  the  insoluble  are  in  the  very  highest  class.  The  demand  for 
the  precious  and  semi-precious  metals  in  the  arts  and  industries 
is  very  great.  In  the  case  of  the  baser  metals  such  as  tin,  copper 
and  iron  which  are  produced  in  great  abundance  in  certain 
countries,  but  are  scarcely  to  be  found  in  others,  an  enormous 
overseas  trade  has  developed.  These  commodities  are  usually 
insured  free  of  particular  average.  However,  in  the  event  of 
casualty  occurring,  unless  it  be  a  sinking  to  a  depth  where  salvage 
operations  are  impracticable,  the  metals  are  practically  unin- 
jured and  the  attendant  loss  is  merely  the  salvage  and  recon- 
ditioning expenses.  Under  similar  conditions  the  soluble  min- 
erals such  as  salt  and  nitrates  would  probably  become  a  total 
loss. 

Coal  and  Ore. — Coal  is  one  of  the  most  important  and  essen- 
tial commodities  in  overseas  trade.  Being  a  rough  dirty  cargo 
it  is  not  shipped  in  the  best  vessels,  except  in  cases  where  vessels 
are  specially  designed  for  this  trade.  For  this  reason  the  risk 
on  coal  is  usually  great.  The  commodity  itself,  however,  is  a 
satisfactory  subject  of  insurance,  especially  the  harder  grades  of 
coal.  The  softer  coal  such  as  the  bituminous,  the  English  and 
the  Indian  coal,  when  shipped  on  long  voyages  on  poorly  venti- 
lated ships,  presents  a  dangerous  fire  hazard  because  of  its  tend- 
ency to  heat.  The  shipment  of  bulk  ores  is  in  about  the  same 
class  as  coal.  The  greatest  danger  with  all  of  these  heavy  car- 
goes is  the  possibility  of  the  vessel  being  overloaded  or  improp- 
erly loaded  thus  affecting  its  stability.  It  requires  no  little 
degree  of  skill  to  so  load  these  cargoes  that  they  will  not  shift 
and  that  the  vessel  will  not  be  unduly  stiff. 

Products  of  Manufacturing. — The  insurance  of  products  of 
manufacturing  affords  the  most  diversified  field  in  marine  under- 
writing. Any  individual  consideration  of  these  commodities 
is  impracticable  in  this  work,  but  the  field  embraces  articles  which 
present  practically  every  problem  with  which  marine  under- 
writing is  concerned.  The  business  as  a  rule  is  general  cargo 
business,  that  is,  vessels  carrying  manufactured  goods  will  be 
loaded  with  many  different  products,  including  articles  little 
susceptible  to  damage  and  those  that  are  extremely  perishable. 


214  MARINE  INSURANCE 

to^cl  her  with  commodities  presenting  all  the  intermediate  degrees 
of  hazard.  Here  the  trite  saying  that  the  marine  underwriter 
must  know  "everything  about  something,"  that  is  his  own  busi- 
ness, and  "something  al>out  everytiiing"  lias  its  most  complete 
illustration,  in  that  the  underwriter  is  called  upon  to  decide 
under  what  conditions  he  will  insure  any  given  commodity, 
anil  upon  the  correctness  of  his  judgment  depends  the  success 
of  his  underwriting.  Truly  in  marine  underwriting  "a  little 
knowledge  is  a  dangerous  thing." 

Diversity  of  Risk. — Mention  may  be  made  of  a  few  manufac- 
tured articles  merely  to  show  the  wide  diversity  of  risk  which 
tliis  field  offers.  Cement  has  of  late  years  become  an  important 
article  of  commerce.  This  risk  is  exceedingly  hazardous  owing 
to  the  fact  that  the  addition  of  water  turns  the  cement  into  stone, 
resulting  in  a  total  loss.  Cases  have  occurred  where  cement  be- 
coming wet  in  the  hold  of  a  vessel  has  turned  into  stone  and  the 
only  way  of  removing  the  mass  has  been  by  dynamite.  Wheat 
flour  on  the  other  hand  which  like  cement  is  a  fine  powder  and  is 
usually  shipped  in  bags  is  one  of  the  best  insurance  risks,  because 
of  the  fact  that  when  wet  the  flour  near  the  bag  forms  a  paste 
which  protects  the  rest  of  the  contents.  The  chief  danger 
with  flour  is  its  tendency  to  spoil  or  to  become  grubby,  risks 
which  the  marine  underwriter,  of  course,  excludes.  Otherwise, 
it  is  not  unusual  for  the  underwriter  to  assume  "all  risks"  on 
flour. 

Machinery. — Machinery  is  an  interesting  subject  of  insurance 
because  of  the  fact  that  in  most  cases  the  breakage  or  loss  of  one 
small  part  of  a  machine  will  render  useless  the  whole.  Accord- 
ingly underwriters  have  devised  machinery  clauses  of  various 
kinds,  the  underlying  principle  of  all  being  that  in  the  event  of 
loss  the  underwriter  merely  assumes  liability  for  the  part  lost 
or  broken  and  for  the  expense  attending  its  replacement. 

Burlaps  and  Bags.  Fire  Hazard. — Burlaps  and  bags  also 
present  peculiar  hazards  and  are  important  because  of  the  great 
quantities  of  these  articles  which  are  shipped.  Fire  is  one  of  the 
great  hazards  in  this  trade,  while  the  damage  caused  by  water 
staining  the  bales  is  also  one  of  considerable  importance.  The 
manufactures  of  petroleum  especially  the  volatile  oils  also  present 
a  .serious  fire  hazard  and  in  tlio  case  of  oils  which  are  shipped  in 


SPECIFIC  CARGO  RISKS  215 

tins  packed  in  wooden  cases  the  loss  by  leakage  through  the 
rusting  of  the  tins  is  very  considerable,  especially  in  the  event  of 
a  casualty. 

Leakage  and  Breakage. — The  subject  of  leakage  and  breakage 
in  connection  with  the  insurance  of  manufactured  articles  is  an 
important  one.  While  the  policy  in  its  original  form  does  not 
assume  liability  for  ordinary  leakage  or  ordinary  breakage,  the 
exigencies  of  business  require  that  in  many  cases  these  risks 
be  assumed  by  the  underwriter.  This  is,  of  course,  an  extra 
hazardous  form  of  insurance  and  the  successful  underwriting 
of  these  risks  depends  in  large  measure  in  preparing  clauses  in 
which  the  burden  of  assuming  usual  leakage  or  breakage  losses  is 
thrown  on  the  assured.  The  underwriter  becomes  responsible 
for  only  those  losses  which  because  of  their  degree  indicate  that 
the  commodity  has  been  subjected  to  some  unusual  condition. 
The  rate  of  premium  for  these  forms  of  insurance  depends  in  large 
measure  on  the  article  itself  and  the  nature  of  its  package.  In 
the  case  of  leakage  the  heaviness  of  the  oil  or  liquid  and  its  tend- 
ency to  thin  and  become  more  fluid  under  heat  is  an  important 
feature.  It  must  be  remembered  that  a  package  that  leaks  at  all 
will,  if  the  voyage  is  long  enough,  probably  result  in  a  total  loss 
of  the  contents,  and  under  the  pressure  to  which  cargo  is  subjected 
in  the  hold  of  a  vessel  during  the  voyage  the  probability  of  strain 
on  the  package  is  very  great.  Breakage  even  in  larger  measure 
is  dependent  on  the  commodity  and  its  package.  Small  articles 
well  packed  will  usually  carry  without  breakage,  and  if  breakage 
occurs  the  loss  will  not  be  total  but  will  probably  involve  only  a 
few  of  the  articles  in  the  package.  On  the  other  hand,  large  single 
articles  such  as  statuary  and  plate  glass  if  broken  at  all,  usually 
result  in  a  total  loss,  and  it  is  almost  impossible  to  name  a  rate 
within  reason  which  is  adequate  to  recoup  an  underwriter  for 
losses  sustained  in  insuring  breakage  on  such  articles.  Such 
insurance  is  as  a  rule  a  matter  of  accommodation  in  connection 
with  the  general  business  of  a  merchant  and  the  underwriter 
does  not  expect  that  this  particular  portion  of  the  business  will 
pay  for  itself. 

Common  Carriers'  Insurance. — Of  late  years  an  important 
cargo  business  has  developed  in  the  insurance  of  common  carriers. 
The  legal  liability  of  ocean  carriers  is  not  very  great  in  view  of 


216  MARINE  INSURANCE 

the  beneficial  legislation  which  luis  been  cnaclcd  in  their  favor 
such  as  the  "Harter  Act"  (see  appendix,  p.  417)  and  other  laws 
curtaihng  the  liability  which  the  conunon  law  imposes  on  carriers 
by  land  or  water.  The  steamship  lines,  especially  the  coastwise 
and  lake  lines,  have,  however,  in  order  to  attract  business  offered 
rates  of  freight  that  include  insurance,  or  have  offered  to  shippers 
their  facilities  in  the  procuring  of  insurance  on  cargo  transported 
by  their  vessels.  The  carriers  have  accordingly  arranged  policies 
to  cover  these  risks  often  of  such  size  that  the  insurance  is  dis- 
tributed in  shares  among  many  underwriters.  These  policies 
are  written  either  in  blanket  form,  the  carrier  paying  a  fixed 
annual  premium,  or  in  floating  form  under  which  reports  of 
risks  applicable  to  the  policy  are  made.  As  a  rule  these  policies 
differ  little  from  those  issued  to  merchants,  but  the  basis  of 
valuation  is  ordinarily  founded  on  what  are  known  as  commodity 
values.  Freight  rates  are  charged  in  accordance  with  the  class 
into  which  a  commodity  falls,  and  in  the  valuing  of  cargo  by  the 
carrier  for  insurance  purposes  the  same  principle  is  used,  a  value 
per  ton  of  weight  for  each  class  being  established  and  reports 
being  made  and  premium  charged  on  the  values  thus  obtained. 
It  is  usual  in  these  policies  for  the  underwriter  to  assume  the  legal 
liability  of  the  steamer  with  respect  to  the  cargo  insured,  so  that 
in  the  event  of  loss  the  underwriter  has  no  recourse  against  the 
vessel  for  losses  resulting  through  its  negligence. 

Common  Carriers'  Liability. — In  this  connection  it  is  important 
to  note  that  in  the  insurance  of  cargoes,  this  liability  of  carriers  is 
an  important  element  in  determining  the  rate  of  premium  to 
be  charged.  Common  carriers  unless  relieved  by  statute,  are 
liable  for  all  damage  suffered  by  property  in  their  custody  unless 
caused  by  inherent  vice,  improper  packing  or  the  Act  of  God  or  the 
King's  or  the  Government's  enemies.  This  materiall}^  reduces  the 
liability  of  the  underwriter  on  cargo,  especially  on  the  rail  hnes 
where  the  liability  of  the  carriers  conforms  most  nearlj^  to  its 
original  form.  While  the  underwriter  under  his  original  form  of 
policy  is  liable  for  these  losses  notwithstanding  the  liability  of  the 
carrier,  the  assured  agrees  in  the  "Sue  and  Labor"  clause  to  sue, 
laljor  and  travel  in  the  defense,  safeguard  and  recovery  of  the 
property,  so  that  he  is  obligated  to  proceed  against  the  carrier 
to  recover  for  the  loss  or  damage  suffered  before  calling  on  his 


SPECIFIC  CARGO  RISKS  217 

underwriter  to  pay.  In  order  that  this  duty  and  obhgation  maj' 
be  more  perfectly  estabhshed  it  is  usual  to  find  in  cargo  policies 
clauses  which  make  the  policy  void  to  the  extent  of  any  liability 
which  a  carrier  may  have  under  the  common  law  or  otherwise,  and 
which  also  make  the  policy  void  if  there  be  other  insurance  pro- 
vided by  the  carrier  or  other  third  person  which  would  be  valid 
if  the  policy  held  by  the  merchant  had  not  been  issued.  Carriers 
in  many  cases  have  inserted  in  their  bills  of  lading  clauses  to  the 
effect  that  in  the  event  of  their  settling  a  claim  on  cargo  they 
shall  have  by  assignment  the  benefit  of  any  insurance  on  the 
property.  Underwriters  have  in  turn  made  their  policies  void 
in  tliis  respect  if  the  assured  accept  a  bill  of  lading  containing 
such  a  stipulation. 

Parcel  Post  and  Registered  Mail  Insurance. — The  subject  of 
cargo  insurance  is  so  vast  that  no  effort  has  been  made  to  treat  it 
in  detail,  the  foregoing  discussion  merely  serving  to  indicate 
some  of  the  problems  confronting  the  underwriter  in  this  branch 
of  insurance.  Under  the  heading  of  cargo  insurance  is  usually 
included  shipments  made  by  parcel  post  and  registered  mail,  a 
very  unsatisfactory  form  of  insurance  because  of  the  fact  that 
usually  proper  proofs  of  loss  cannot  be  obtained.  It  is  seldom 
known  on  what  vessel  a  package  is  shipped  and  the  mere  fact 
that  it  does  not  arrive  at  destination  is  usually  proof  of  its  loss. 
Whether  non-delivery  is  due  to  a  marine  loss,  a  fire  or  a  theft 
cannot  be  established,  the  consequence  being  that  an  underwriter 
must  charge  a  high  rate  on  such  shipments  to  provide  for  all 
possible  contingencies.  Shipments  by  registered  mail  are,  of 
course,  more  carefully  watched  than  are  those  by  parcel  post,  and 
this  method  of  transit  is  used  in  the  shipment  of  securities  and 
currency  and  other  high  valued  commodities  of  small  bulk. 

Securities  and  Currency. — In  the  shipment  of  securities  and 
currency  by  registered  mail  it  is  usual  for  the  underwriter  to  re- 
quire that  the  contents  be  counted  and  the  package  sealed  by  a 
notary  public,  who  under  his  seal  gives  a  certificate  of  the  contents 
of  the  package.  The  insurance  of  currency  is,  of  course,  more 
hazardous  than  the  insurance  of  securities,  because  the  latter  can 
usually  be  replaced  upon  the  giving  of  proper  bonds  which  are  at 
the  expense  of  the  underwriter,  whereas  currency  when  lost 
cannot  be  reissued.     The  shipment  of  gold,  currency  and  pre- 


2 is;  MAIilNE  INSURANCE 

cious  l)ullion  under  l)ill  of  lading  is  jilso  an  important  item  of 
insurance,  especially  when  it  is  necessary  to  ship  gold  from 
one  country  to  another  to  equalize  exchange  rates.  Such  ship- 
ments are  insured  from  hank  to  bank  and  because  of  the  extreme 
care  and  protection  afforded,  offer  little  except  a  total  loss  hazard 
to  the  underwriter. 


CHAPTER  13 
HULL  INSURANCE 

Classes  of  Hull  Insurance. — Hull  insurance,  the  second  of  the 
three  general  divisions  of  marine  insurance  may  be  subdivided 
into  four  broad  groups,  each  characterized  by  the  type  of  vessel 
involved,  viz.:  sail,  auxiliary  sail,  steamers  and  power  boats. 
These  four  classes  may  again  be  separated  into  insurance  placed 
on  trip  risks  and  that  placed  on  the  annual  or  time  basis.  A 
trip  insurance  is  one  whose  termini  are  mainly  geographical; 
that  is,  a  risk  which  is  insured  from  one  port  to  one  or  more  other 
ports,  with  perhaps  a  continuation  of  the  risk  in  the  final  port  for 
a  specified  number  of  hours  or  days  after  safe  arrival.  On  the 
other  hand,  an  insurance  on  time,  whether  on  the  annual  basis 
or  for  a  shorter  period  is  limited  entirely  by  the  date  of  attach- 
ment and  the  date  of  termination,  except  in  so  far  as  the  insur- 
ance may  be  made  void  by  the  breach  of  specific  trading  war- 
ranties. There  is  no  limit  in  this  country  to  the  time  for  which  a 
policy  may  be  written,  but  in  England  the  law  proAades  a  time 
limit  of  one  year,  and  this  period  is  by  custom  adopted  in  this 
country.  In  rare  cases  a  combination  of  the  trip  and  time  forms 
are  found,  wherein  a  vessel  is  insured  for  a  named  voyage,  the 
total  time  at  risk,  however,  to  be  definitely  limited  to  a  given 
number  of  days  or  months. 

Single  Vessel  and  Fleet  Insurance. — Hull  insurance  may  again 
be  considered  as  falling  into  two  further  groups,  viz.:  single  vessel 
risks  and  fleet  insurance.  Formerl}^  single  vessel  risks  were  more 
common  among  sailing  vessels  than  steamers.  Usually  single 
individuals  or  groups  of  men  jointly  owned  a  sailing  vessel, 
while  steam  tonnage  was  largely  developed  by  companies  who 
formed  steamers  into  fleets  and  operated  them  over  certain 
definite  routes.  Now,  however,  in  the  case  of  steamer  tonnage, 
the  custom  is  growin*^  of  forming  a  separate  corporation  to  own 
each  individual  vessel,  the  corporation  usually  bearing  the  name 
of  the  vessel  as  the  "Olympic  Steamship  Corporation."     Thus 

219 


2LM)  MAh-IM'!  I XSUliANCK 

\vc  fiiul  that  even  in  large  fleets  each  vessel  is  separately  owned, 
although  all  the  vessels  in  the  fleet  will  be  jointly  oi)erated  by  a 
eorporation  formed  for  this  special  purpose.  The  primary 
object  in  single  vessel  ownership  is  to  make  each  vessel  a  unit 
when  any  question  of  legal  liability  arises,  so  that  any  judgment 
obtained  can  be  executed  only  against  the  guilty  vessel  and  not 
against  all  the  vessels  as  would  be  the  case  if  they  were  jointly 
owned.  The  managing  corporation  may  charter  all  the  vessels 
or  it  nia^'  merely  load  them  and  manage  thoir  operation. 

Single  Vessel  Risks. — As  a  rule  single  vessel  risks  from  an 
underwriting  standpoint  merit  a  higher  rate  of  jiremium  than  do 
vessels  insured  jointly  as  a  fleet  whether  separately  owned  or 
not.  The  reason  for  this  is  obvious.  A  single  vessel  risk  is 
rated  on  its  own  merits.  It  stands  or  falls  by  itself.  If  well  built 
and  in  good  condition  and  owned  by  persons  whose  record  as  ship 
operators  or  owners  is  good,  it  will  be  favorably  considered.  If 
badly  built  and  in  poor  condition,  with  the  further  handicap  of 
poor  ownership  it  will  either  not  be  insured,  or  if  insured  bj'  some 
venturesome  underwriter,  the  policy  will  carry  a  high  rate  of 
premium. 

Fleet  Insurance. — Fleet  insurance,  on  the  other  hand,  presents 
a  \'er3'  tlifferent  problem.  ■  As  a  rule,  the  formation  of  fleets  is  a 
gradual  process.  New  vessels  are  added  from  time  to  time, 
with  the  result  that  in  a  fleet  there  are  usually  found  new  vessels 
and  old  vessels,  good  vessels  and  those  that  are  not  so  good. 
Considered  as  separate  units  an  underwriter  would  be  favorably 
disposed  to  insure  the  newer  and  better  vessels,  but  would  hesitate 
to  accept  lines  on  the  older  and  inferior  vessels.  In  writing  fleet 
insurance,  however,  the  underwriter  as  a  rule  cannot  pick  and 
choose,  but  must  write  all  or  none.  Accordingl}^  the  underwriter 
accepts  a  percentage  interest  in  the  fleet,  making  a  uniform  rate 
for  the  whole,  or  as  is  often  the  case,  dividing  the  fleet  into  groups 
in  accordance  with  the  merits  of  the  respective  vessels,  and  fixing 
a  rate  for  each  group. 

Moral  Hazard. — In  all  branches  of  marine  insurance  the 
(luestion  of  moral  hazard  is  important,  but  it  is  particularly  vital 
in  hull  insurance.  The  character  of  the  owner  and  the  experience 
and  ability  of  the  manager  of  a  single  vessel  or  of  a  fleet  are  pri- 
mary considerations  in  the  insurance  of  hulls.     Bad  ownership  or 


HULL  INSURANCE  221 

incompetent  management  means  many  losses,  some  of  which 
may  present  evidence  of  unfair  deaUng.  No  asset  is  so  valuable 
to  a  shipowner  as  his  reputation.  A  good  record  will  procure 
insurance  on  vessels  which  because  of  their  age,  for  instance, 
would  be  otherwise  uninsurable.  On  the  contrary,  a  bad  record 
in  the  owning  and  management  of  vessels  which  are  in  themselves 
good  risks  will  make  the  procurement  of  insurance  a  difficult 
matter.  Not  only  does  bad  management  affect  the  procurement 
of  insurance  on  the  hull,  but  it  also  affects  insurance  on  the  cargo 
and  freight.  The  matter  of  ownership  and  management  affects 
not  only  the  question  of  accident  to  vessels  through  errors  of 
judgment  in  navigation,  owing  to  the  employment  of  incompetent 
masters  and  crew,  but  it  concerns  itself  with  the  upkeep  of  the 
vessel  with  respect  to  its  physical  condition.  A  run-down 
vessel  is  a  bad  insurance  risk  from  the  underwriter's  viewpoint, 
but  it  is  also  a  bad  risk  from  a  financial  point  of  view.  A  steamer 
with  its  delicate  motive  power  cannot  be  neglected.  A  wooden 
sailing  vessel  cannot  be  neglected  or  its  hull  and  rigging  will 
deteriorate.  Vessels  need  constant  attention,  and  if  through 
mismanagement  an  owner  neglects  the  upkeep  of  his  vessels,  his 
loss  record  will  soon  reveal  the  fact,  even  if  it  is  not  otherwise 
discovered  by  the  underwriters.  High  rates  or  no  insurance 
at  all  will  be  the  inevitable  result. 

The  Value  of  a  Vessel. — The  determination  of  the  proper 
valuation  at  which  a  vessel  should  be  insured  is  not  easy,  owing 
to  the  various  factors  which  affect  the  value.  The  amount  should 
be  fixed  at  the  point  where  the  owner  will  be  fully  reimbursed 
in  the  event  of  total  loss,  but  will  have  no  inducement  to  com- 
pass the  destruction  of  his  vessel  in  order  to  procure  the  insured 
value.  Theoretically,  the  value  of  a  vessel  is  the  total  of  all  the 
net  freight  which  the  vessel  can  earn  during  the  ordinary  period 
of  such  a  vessel's  usefulness  plus  its  breakup  value  at  the  end  of 
the  period.  Of  course  ,this  estimated  value  will  vary  from  time 
to  time  as  freight  rates  increase  or  decrease  with  the  demand  for 
tonnage.  However,  as  a  practical  matter,  other  considerations 
such  as  the  increased  cost  of  replacing  such  a  vessel  at  the  time 
of  renewing  the  insurance,  her  increased  earning  power  during  a 
period  of  high  freights,  or  generally  the  law  of  supply  and  de- 
mand are  the  determining  factors  in  fixing  the  value  of  the  vessel. 

16 


222  MA  /i7  A  /<;  1  .\s  i;  i;a  a  ( 7-; 

It  iiiiisf  1)0  (;onsi(l(M(Ml  tli;it  (lining;  ;i  period  of  oiio  year  the 
whole  freif^ht  rate  and  vessel  situation  ma}^  change,  and  a 
fair  value  at  the  inception  of  the  policy  based  on  the  then 
existing  conditions,  may  before  the  policy  expires  produce  a 
moral  condition  which  offers  temptation  to  the  unscrupulous 
owner. 

Valuation  Should  be  Reasonable. — To  the  underwriter  who  is 
issuing  full  form  insurance,  as  it  is  called — that  is,  is  writing  a 
policy  covering  particular  average  losses  as  well  as  general  average 
and  total  loss  risks — the  valuation  is  vital,  because  his  liability 
for  i^artial  loss  is  fixed  by  the  percentage  of  the  total  value  which 
he  insures.  Thus,  if  he  does  not  insist  on  a  reasonable  value,  and 
prevent  by  agreement  the  placing  of  an  undue  proportion  of  the 
value  against  total  loss,  general  average  and  salvage  charges,  he 
will  in  the  event  of  partial  loss,  find  that  he  is  charged  with  an 
unreasonable  amount  as  his  share  of  the  repair  bills.  In  order 
that  underwriters  may  protect  themselves  in  this  respect  it  is 
usually  warranted  that  only  a  stipulated  percentage  of  the  full 
value  of  the  vessel  may  be  placed  under  limited  form  insurance. 
Reference  has  already  been  made  to  the  custom  of  separating  the 
total  value  into  parts,  one  applying  to  the  hull  and  its  fittings  and 
another  to  the  machinery.  In  some  cases  hull  values  are  further 
divided  into  hull  and  cabin  outfit,  while  the  machinery  value  may 
be  separated  as  in  the  case  of  refrigerated  vessels,  into  propelling 
and  refrigerating  machinery. 

Trading  Warranties. — The  trading  w^arranties  are  also  of  very 
great  importance  in  the  insurance  of  hulls.  Vessels  when  built 
are  usually  designed  for  some  specific  service,  such  as  lake  trade, 
coastwise  trade  or  ocean  service.  If  used  out  of  these  trades, 
weakness  may  develop  resulting  in  serious  losses.  Accordingly, 
when  issuing  policies,  underwriters  by  express  warranty  definitely 
indicate  the  geographical  limits  within  which  the  vessel  may 
operate  in  order  not  to  void  the  insurance.  These  warranties 
range  all  the  way  from  clauses  limiting  a  vessel  to  service  in  a 
nametl  port,  or  along  a  limited  strip  of  coastline  to  world-wide 
limits  permitting  trade  on  any  of  the  seven  seas.  In  policies 
insuring  vessels  operating  on  the  Great  Lakes  and  in  certain  other 
localities  a  further  trading  warranty  as  to  time  is  inserted  limiting 
navigation  to  the  open  season. 


■    HULL  INSURANCE  223 

Institute  Warranties. — Tiie  trading  warranties  in  most  general 
use  are  the  American  or  London  Institute  Warranties.  This 
clause  permits  practically  world-wide  trade,  exceptions  being 
made,  however,  of  British  North  America  on  the  Atlantic  Coast 
except  certain  coaling  ports  and  British  North  America  on  the 
Pacific  Coast  north  of  fifty  degrees,  of  certain  portions  of  the 
Baltic  Sea  and  of  ports  on  the  northernmost  coast  of  Europe. 
Exception  is  also  made  of  trade  to  Behring  Sea,  Alaska  or  Siberia, 
except  Vladivostock  between  May  first  and  November  first. 
The  exceptions,  it  will  be  noted,  all  relate  to  trade  in  Northern 
or  Arctic  sections  where  navigation  because  of  ice  and  fog  is 
extra  hazardous,  but  with  certain  exceptions  provision  is  made 
for  the  cancellation  of  these  warranties  upon  the  payment  of 
additional  premium.  A  further  restriction  is  found  in  these 
warranties  prohibiting  the  carriage  of  Indian  coal  between  March 
first  and  June  thirtieth. 

Loading  Warranties. — Loading  warranties  are  not  uncommon 
in  hull  policies.  A  New  York  form  used  for  sailing  vessel  risks 
prohibits  the  vessel  from  loading  more  than  her  registered  under 
deck  capacity  with  lead,  marble,  coal  or  iron  on  any  one  passage 
and  also  warrants  that  the  vessel  will  not  use  any  of  the  Guano 
Islands,  nor  load  lime  under  deck.  These  loading  warranties 
are  inserted  either  because  the  cargo  named  is  heavy  and  an 
undue  quantity  will  imperil  the  safety  of  the  vessel  or  because  the 
commodity  as  in  the  case  of  lime  is  dangerous  in  its  own  nature. 

Purpose  of  Warranties. — Obviously  trading  or  loading  warran- 
ties may  be  made  in  any  form,  but  the  object  the  underwriter  has 
in  mind  in  inserting  them  is  to  prevent  the  vessel  proceeding 
under  the  form  of  policy  issued  and  at  the  rate  charged  to  other 
trades  than  that  for  which  charge  was  made  or  for  which  the 
vessel  is  suited.  The  rate  of  premium  depends  in  large  measure 
on  the  trading  warranties  required.  It  is  usually  cheaper  for 
the  assured  to  restrict  the  trading  warranties  obtaining  a  low 
basic  rate  and  then  if  it  becomes  necessary  to  send  the  vessel  out 
of  these  warranties,  to  obtain  the  underwriter's  assent  to  such 
extended  service  by  the  payment  of  an  additional  premium. 

Average  Clauses. — Average  clauses  in  hull  policies  are  usually 
either  in  the  minimum  franchise  form  or  in  the  deductible  average 
form.     The  item  of  insurance  being  an  important  one  in  the  cost 


224  .u.i/.'/.v/-;  ixsi'h'.wcK 

of  operating  a  vessel,  the  assured  seeks  to  obtain  protectionat  the 
lowest  possible  cost.  If  his  experience  with  respect  to  partial 
loss  has  been  favorable  he  may  decide  to  assume  small  partial 
losses  and  thus  obtain  a  reduced  rate.  It  is,  therefore,  quite 
common  to  find  in  hull  policies  deductible  average  clauses. 
The  deductible  franchise  will  vary  from  five  hundred  dollars  as  in 
the  case  of  the  Standard  Lake  Hull  insurance  form  to  several 
hundred  thousand  dollars  as  in  the  case  of  some  of  the  huge 
trans-Atlantic  liners,  where  the  procurement  of  full  coverage  is  a 
tlifficult  matter  owing  to  the  fact  that  the  great  value  may  exhaust 
the  world's  insurance  market.  Special  inducement  has  to  be 
offered  to  entice  underwriters  to  write  large  lines  and  the  large 
deductible  average  franchise  is  one  of  the  baits  offered. 

Three  Percent  Average  Clause. — As  a  rule  the  minimum 
franchise  form  of  average  clause  is  the  one  used  in  hull  policies, 
in  the  case  of  steamers  or  motor  vessels  the  franchise  applying 
to  each  valuation  separately  or  to  the  whole  value.  The  fran- 
chise is  usually  fixed  at  three  or  five  percent,  but  this  percentage 
applied  to  a  high  value  produces  such  a  large  sum  as  a  minimum 
claim  under  the  policy  that  a  minimum  amount  in  dollars  is 
inserted  such  as  twenty-four  hundred  and  twenty-five  dollars 
(five  hundred  pounds  sterling)  or  forty-eight  hundred  and  fifty 
dollars  (one  thousand  pounds  sterling).  The  average  clause  in 
most  common  use  in  steamer  insurance  reads: 

"...  this  policy  is  warranted  free  from  particular  average  under 
three  percent,  or  unless  amounting  to  S4850,  but  nevertheless  when  the 
vessel  shall  have  been  stranded,  sunk,  on  fire,  or  in  collision  with  any 
other  ship  or  vessel,  underwriters  shall  pay  the  damage  occasioned 
thereby,  and  the  expense  of  sighting  the  bottom  after  stranding  shall 
he  paid,  if  reasonably  incurred,  even  if  no  damage  be  found." 

"...  Average  payable  on  each  valuation  separately'  or  on  the 
whole,  without  deduction  of  thirds,  new  for  old,  whether  the  average  he 
particular  or  general." 

Separate  Valuations. — The  practical  working  of  the  separate 
valuation  clause  will  appear  from  the  following  illustration. 
A  steamer  is  insured  on  a  valuation  of  three  hundred  thousand 
dollars,  divided  two  hundred  thousand  dollars  on  hull  and  one 
hundred  thousand  dollars  on  machinery.     The  vessel  encounters 


HULL  INSURANCE  225 

very  heavy  weather  causing  damage  not  only  to  the  super- 
structure and  the  hull  itself  but  also  to  the  machinery.  The  loss 
on  the  hull  when  adjusted  amounts  to  seventeen  hundred  and 
hfty  dollars  and  on  the  machinery  to  three  thousand  two  hundred 
and  fifty  dollars.  If  separate  valuations  were  not  used  and 
there  was  no  minimum  franchise  of  forty-eight  hundred  and 
fifty  dollars  there  would  be  no  claim  on  the  underwriters  in  this 
case  as  the  total  loss  suffered  is  five  thousand  dollars  whereas 
three  percent  on  the  total  value  of  three  hundred  thousand 
ilollars  is  nine  thousand  dollars.  Under  the  separate  valuation 
plan,  however,  there  is  a  valid  claim  on  the  machinery,  three 
percent  on  the  valuation  of  one  hundred  thousand  dollars  being 
three  thousand  dollars  and  the  claim  on  machinery  as  adjusted 
being  three  thousand  two  hundred  and  fifty  dollars.  There 
would,  however,  be  no  claim  on  the  hull,  three  percent  on  this 
valuation  being  six  thousand  dollars  and  the  adjustment  showing 
a  loss  of  only  one  thousand  seven  hundred  and  fifty  dollars. 
Here,  however,  the  minimum  franchise  becomes  operative.  The 
loss  is  adjusted  on  the  whole  value  and  a  valid  claim  is  proved, 
the  total  amount  of  loss  being  five  thousand  dollars  and  the 
mininuim  franchise  but  forty-eight  hundred  and  fifty  dollars. 
Were  this  minimum  franchise  not  inserted  and  the  valuations 
separated,  shipowners  would  find  that  a  three  percent  average 
clause  left  a  very  heavy  burden  upon  them. 

Thirds  Off. — The  separate  valuation  clause  quoted  above  con- 
tains an  expression  in  the  negative,  i.e.,  ''without  deduction  of 
thirds,  new  for  old, "  which  refers  to  one  of  the  common  principles 
of  hull  underwriting.  This  principle  came  into  operation  in  the 
days  of  wooden  ships  and  was  based  on  the  theory  that  in  case 
of  repairs  to  a  vessel,  the  new  material  supplied  left  the  vessel 
in  better  condition  than  before  the  accident  and  that  the  under- 
writer should  not,  therefore,  bear  the  whole  burden  of  the  loss. 
That  this  theory  was  sound  in  the  case  of  a  vessel  that  had  been 
in  service  for  some  time,  there  can  be  no  doubt,  but  in  the  case 
of  new  vessels  meeting  with  disaster,  it  is  difficult  to  establish 
that  the  repaired  vessel  is  a  better  one  than  it  was  before  the 
disaster.  Because  it  was  impracticable  to  treat  each  case  on  its 
merits  an  arbitrary  percentage  of  deduction  was  established  and 
the  "thirds  off"  clause  came  into  use.     With  the  introduction 


'jLMi  uiA'/.v/-;  ixsruAxcr: 

of  metal  as  a  incdium  for  (he  con.stnu;lion  of  vessels,  it  was  still 
more  difficult  to  establish  the  fact  that  the  new  metal  inserted  to 
replace  the  old  resulted  in  any  inipn)V(Mnent  in  the  vessel,  and  the 
custom  has  grown  as  in  the  clause  above  cited  of  waiving  this  stipu- 
lation at  least  with  respect  to  the  steel  or  iron  portions  of  the  vessel. 

Modified  "Thirds  Ofif"  Clauses.— That  the  doctrine  of  the 
ileduction  of  thirds  is  right  in  principle  there  can  be  no  doubt, 
but  that  the  arbitrary  adoption  of  a  fixed  rate  of  deduction  in 
all  cases  works  a  hardship  on  the  assured  is  equally  true.  Many 
modifications  of  the  "thirds  off"  clause  have  been  made  each 
striving  to  fix  a  scale  of  deductions  which  would  be  more  equit- 
able to  the  assured.  It  will  be  found  that  in  some  of  these 
clauses  there  is  a  sliding  scale  of  deduction,  the  amount  gradually 
increasing  with  the  age  of  the  vessel.  This  is  especially  true 
with  respect  to  the  yellow  metaling  on  the  hull  of  wooden  vessels. 
The  doctrine  of  "thirds  off"  is  also  applied  in  the  settling  of 
general  average  losses,  but  here  again  sliding  scales  of  deductions 
have  been  adopted  in  order  to  arrive  as  nearly  as  possible  at  a 
fair  basis  for  the  settlement  of  all  cases. 

Machinery  Claims. — For  many  years  after  the  introduction  of 
steam  engines  as  the  motive  power  of  vessels,  it  was  doubtful 
whether  or  not  the  general  words  in  the  policy  form  reading  "and 
all  other  perils,  losses  and  misfortunes,  that  have  or  shall  come  to 
the  hurt,  detriment  or  damage  of  the  said  vessel,  or  any  part 
thereof"  would  include  losses  caused  by  the  bursting  of  boilers 
or  other  losses  occasioned  through  accident  to  the  machinery  of 
the  vessel.  To  definitcl}^  settle  the  point  a  test  case  with  respect 
to  the  breakage  of  the  air  chamber  of  a  pump  operated  by  a 
donkey  engine  on  the  steamer  "Inchmaree"  through  the  appar- 
ent negligence  of  the  crew,  was  taken  up  to  the  House  of  Lords 
in  England.  After  careful  consideration  of  the  particular  facts 
in  this  case  and  of  the  conflicting  decisions  rendered  in  similar 
cases  they  unanimously  decided  that  such  loss  was  not  occasioned 
by  a  cause  of  the  same  nature  as  "a  peril  of  the  sea,"  and  held 
that  the  underwriters  were  not  liable. 

Inchmaree  Clause. — Following  this  decision,  in  order  that 
protection  against  loss  by  casualties  of  this  nature  might  be 
given  to  shipowners,  a  clause  known  as  the  "Inchmaree"  clause 
was  introduced  into  hull  policies,  which  reads  as  follows,  viz.: 


HULL  INSURANCE  227 

"This  insurance  also  specially  to  cover  (subject  to  the  free  of  average 
warranty)  loss  of,  or  damage  to  hull  or  machinery,  through  the  negligence 
of  master,  charterers,  mariners,  engineers,  or  pilots,  or  through  explo- 
sions,^ bursting  of  boilers,  breakage  of  shafts,  or  through  any  latent 
defect  in  the  machinery  or  hull,  provided  such  loss  or  damage  has  not 
resulted  from  want  of  due  diligence  by  the  owners  of  the  ship,  or  any 
of  them,  or  by  the  manager.  Masters,  mates,  engineers,  pilots,  or  crew 
not  to  be  considered  as  part  owners  within  the  meaning  of  this  clause 
should  they  hold  shares  in  the  steamer." 

The  clause  now  appears  in  most  hull  policies  on  vessels  propelled 
by  mechanical  power,  and  has  the  effect  of  adding  a  new  group 
of  perils  to  those  already  enumerated  in  the  printed  form  of 
policy.  Its  use  has  been  unfortunate  for  the  underwriters  in 
connection  with  the  new  internal  combustion  engines  with  which 
the  modern  auxiliary  sailing  vessels  are  equipped,  because 
of  the  fact  that  many  machinery  claims  have  resulted  from  ap- 
parent lack  of  knowledge  on  the  part  of  the  engineers  charged 
with  the  operation  of  this  comparatively  new  type  of  marine 
engine. 

Collision  Liability. — Incorporated  in  most  hull  policies  there 
is  found  a  clause  known  as  the  Collision  or  Running  Down 
Clause  which  in  reality  is  a  separate  liability  insurance.  The  perils 
clause  in  the  policy  takes  care  of  physical  losses  sustained  by  the 
vessel  through  collisions.  There  is,  however,  another  collision 
liability  which  is  concerned  not  with  the  damage  sustained  by 
the  vessel  itself,  but  the  damage  sustained  by  the  vessel  with 
which  the  insured  vessel  has  collided,  or  by  its  cargo  or  by  the 
passengers  or  crew  of  the  vessels.  It  is  this  liability  to  which  the 
Collision  or  Running  Down  clause  refers.  Under  the  law  a 
vessel,  if  negligently  colliding  with  another  vessel,  is  liable  for 
the  resultant  damage  caused  to  the  other  vessel  and  its  cargo 
and  for  loss  of  life  or  personal  injury  if  occasioned  by  such  negli- 
gence. This  liabilit}^  also  extends  to  piers,  harbor  walls,  break- 
waters or  other  objects  with  which  a  vessel  may  negligently 
come  into  violent  contact.  There  are  various  forms  of  collision 
clauses,  but  the  form  in  general  use  (see  A.  H.  U.  A.,  form  No.  C-1, 
appendix,  p.  373)  affords  protection  against  merely  the  liability 
for  physical  injurj^  to  another  ship,  its  freight  and  cargo  and  for 
demurrage  due  to  its  owner  for  the  time  he  is  deprived  of  the  use 


2'2S  MAh-IM-:  ixscn.wcE 

of  liis  vessel,  hut  only  to  the  extent  of  the  insured  amount  in  the 
policy.  Tile  undorwritor,  however,  assumes  no  liability  for 
cons(>(iu(Milial  injury  to  harbors,  wharves,  pitu's,  st;i}z;es  or  other 
similar  structures,  or  for  the  removal  of  obstructions  to  naviga- 
tion caused  by  the  collision,  nor  for  the  loss  of  life  or  personal 
inj  ury.  The  clause  also  excludes  liability  for  loss  of  the  cargo  or  the 
frei^;ht  engagements  of  the  insured  vessel.  The  necessity  of 
limiting  liability  to  the  pioportion  of  the  insured  value  which  the 
underwriter  assumes,  not  exceeding  the  face  amount  of  the  policy, 
will  be  apparent  when  it  is  considered  that  there  is  no  limit  to  the 
liability  ©f  the  vessel  owner  for  losses  due  to  negligence,  all  his 
property  being  subject  to  attachment,  unless  he  invokes  the  law 
and  obtains  a  limitation  of  liability  to  the  value  of  the  offending 
vessel  in  her  condition  after  the  accident.  This  limitation  will 
usually  be  granted  by  the  admiralty  courts  if  it  can  be  established 
that  the  owner  personally  is  free  from  contributory  negligence. 
This  is  usually  so  in  collision  cases,  the  negligence  being  due 
to  the  master,  mariners  or  the  pilot.  In  the  United  States 
the  law  permits  a  limitation  of  liability  to  the  actual  value  of  the 
offending  vessel  after  the  collision,  to  which  is  added  the  freight 
being  earned  on  the  passage.  If  the  vessel  is  worth  more  than 
the  claims  against  it  the  owners  will  keep  the  vessel  and  pay  the 
damages,  if  the  claims  exceed  the  value  of  the  vessel  the  owners 
will  probably  abandon  the  vessel  to  the  claimants.  In  England 
the  limitation  of  liability  is  fixed  by  law  at  eight  pounds  sterling 
(£8)  per  gross  ton  in  the  event  of  property  damage  or  at  seven 
pounds  sterling  (£7)  per  ton  additional  if  there  be  loss  of  life  or 
personal  injury.  These  sums  are  fixed  standards  whether  the  ship 
be  an  old  wooden  sailing  vessel  or  a  new  high  speed  ocean  grey- 
hound and  are  made  regardless  of  the  real  value  of  the  vessel  per 
ton. 

Legal  Expenses  in  Collision  Cases. — Under  the  Collision  clause 
underwriters  also  assume  responsibility  for  their  respective  pro- 
portions of  the  legal  expenses  in  connection  with  the  establish- 
ment of  the  liability  of  the  owner.  Provision  is  also  made  for 
the  settlement  of  losses,  if  it  should  be  decided  that  both  vessels 
are  to  blame  for  the  collision,  on  the  principle  of  cross  liabilities, 
in  order  to  avoid  a  multiplicity  of  financial  transactions.  Owing 
to  the  fact  that  many  vessels  may  be  the  property  of  a  single 


HULL  INSURANCE  220 

owner  and  two  of  these  vessels  may  come  into  collision,  it  is 
provided  in  the  clause  that  the  fact  of  the  common  owner- 
ship shall  be  disregarded  and  settlement  made  as  if  the  vessels  were 
separately  owned.  Provision  is  also  made  for  the  adjustment 
of  the  liability  under  this  clause  by  arbitration,  the  owners  ap- 
pointing one  arbitrator,  the  underwriters  a  second,  these  two 
arbitrators  appointing  a  third  before  entering  on  their  conference, 
the  decision  of  this  arbitrator  or  of  any  two  of  the  arbitrators 
to  be  binding  on  all  concerned. 

Club  Insurance. — The  policy  in  its  ordinary  form  docs  not  af- 
ford protection  against  the  liability  of  a  vessel  owner  for  damage 
to  the  cargo  in  his  possession  due  to  negligence  nor  for  injury 
to  persons,  through  acts  of  the  owner  or  his  agents.  Neither  does 
it  provide  protection  against  the  liability,  modified  by  exemption 
clauses,  with  which  the  owners  are  charged  under  the  bill  of 
lading.  These  liabilities  are  a  very  serious  matter  for  vessel 
owners  and  they  have  accordingly  formed  mutual  protective 
associations  which  assume  these  liabilities,  each  ow^ner  entering 
his  vessels  in  the  association  and  paying  a  fixed  rate  per  ton  for 
the  protection  thus  afforded.  The  associations  are  sometimes 
called  clubs  and  such  insurance  is  commonly  referred  to  as  Club 
Insurance.  These  associations  have  been  established  for  many 
years  in  Great  Britain,  but  it  is  only  recently  that  a  Mutual  Pro- 
tective Association  of  Shipowners  has  been  authorized  by  law  in 
New  York  and  such  an  organization  formed. 

Protection  and  Indemnity  Clause. — The  establishment  of  these 
clubs  has  had  a  direct  bearing  on  the  ordinary  form  of  marine  in- 
surance. It  was  formerly  the  custom  for  underwriters  to  assume 
under  the  Collision  Clause  only  three-fourths  of  the  collision 
liability  and  to  assume  none  whatever  for  loss  of  life  or  personal 
injury  or  for  damage  to  harbors,  docks,  piers,  nor  for  damage  to 
goods  on  board  the  vessel,  nor  for  any  other  liability  for  which  the 
owner  might  be  held  by  law.  This  was  done  on  the  theory  that 
leaving  one-quarter  of  the  collision  liability  with  the  owner 
would  make  him  more  diligent  in  seeing  that  his  vessel  was 
carefully  navigated,  and  that  the  other  liabilities  were  not  such 
risks  as  a  marine  underwriter  should  assume,  because  freeing  the 
owners  from  these  liabilities  would  result  in  less  careful  opera- 
tion  of  vessels.     The  acceptance  of  these  risks  by  the  Clubs 


230  MAh'IXh'  I.\S(! RANGE 

liowevcr  icinovod  all  the  supposed  advantages  of  leaving  lliem 
witli  the  owners,  with  the  i(>suh  that  underwriters  were  willing 
to  assume  these  risks.  Accordingly  tlie  three-quarter  limitation 
is  usually  omitted  from  the  Collision  Clause,  and  the  other  lia- 
bilities assumed  by  the  Clubs  are  sometimes  insured  by  under- 
writers under  Protection  and  Indemnitj'-  clauses  as  they  are 
known.  In  many  cases  however  these  risks  are  as  a  matter  of 
economy  left  with  the  Clubs,  this  form  of  insurance  V)eing  inex- 
pensive, although  the  members  are  su))ject  to  assessment.  Some 
owners  however  prefer  to  have  all  their  liability  covered  under 
a  single  policy  and  the  "P  and  I"  clause  as  it  is  usually  called 
will  in  such  cases  l)e  inserted  in  the  policy. 

Cancellation  and  Lay-up  Return  Premiums. — Reference  has 
already  been  made  to  the  basic  principle  of  marine  underwriting, 
namely,  that  the  policy  having  attached  the  premium  is  earned 
regardless  of  the  fact  that  through  some  unforeseen  event,  either 
the  transfer  of  ownership  or  the  loss  of  the  vessel  through  a  peril 
not  insured  against,  the  owner  is  divested  of  his  property  before 
the  conclusion  of  the  policy  term,  thus  relieving  the  underwriter 
of  a  portion  of  his  risk.  Hull  insurances  being  written  as  a  rule 
for  a  period  of  a  j^ear  the  strict  enforcement  of  this  rule  in  the 
case  of  the  sale  of  a  vessel  might  work  a  hardship.  Accordingly 
it  is  now  customary  to  provide  for  the  cancellation  of  the  policy 
by  mutual  agreement,  return  premium  being  made  at  a  fixed  rate 
for  each  uncommenced  month.  It  also  happens  in  many  cases 
that  vessels  will  be  laid  up  for  repairs  or  without  employment  for 
considerable  periods.  The  rate  charged  is  based  on  a  vessel  in 
navigation,  whereas  during  the  period  of  repair  or  non-employ- 
ment the  vessel  is  in  port  exposed  to  a  minimum  of  risk.  Pro- 
vision is  therefore  made  for  the  payment  of  a  return  premium 
at  a  fixed  rate  for  each  consecutive  period  of  fifteen  or  thirty 
days  the  vessel  may  be  laid  up  in  port.  It  should  be  observed 
however  that  a  vessel  is  laid  up  only  when  it  is  out  of  commission 
and  not  engaged  in  the  ordinary  course  of  its  employment.  That 
is,  a  vessel  cannot  be  considered  as  laid  up,  when  because  of  the 
congested  condition  of  a  port  it  remains  in  the  harbor  for  a  long 
period  in  order  to  discharge  inward  cargo  and  to  load  outward 
shipments.  Claims  for  lay-up  returns  are  sometimes  made  under 
these  circumstances  and  careful  scrutiny  of  them  is  always  neces- 


HULL  INSURANCE  231 

sary.  It  was  formerly  the  usual  practice  that  lay-up  claims  were 
not  allowed  when  the  lay  up  was  the  result  of  repairs  which  were 
at  the  expense  of  the  underwriters.  This  provision  is  still  made 
in  some  underwriters  "lay-up"  forms  and  is  also  found  in  the 
Standard  "Lake  Time  Clauses"  used  in  the  insurance  of  vessels 
operating  on  the  Great  Lakes. 

"And  Arrival." — It  will  be  noticed  that  the  usual  form  of  clause 
providing  for  lay-up  returns  and  cancellation  returns  ends  with 
the  words  "and  arrival. "  Unexplained,  the  words  appear  mean- 
ingless and  it  would  seem  that  an  expression  covering  the  point 
intended  could  have  been  devised  that  would  at  least  have  been 
intelligible  to  the  lay  mind.  It  has  been  stated  that  the  premium 
is  earned  when  the  policy  attaches,  and  that  the  destruction  of 
the  vessel  before  the  expiration  of  the  policy  term  will  not  give 
the  assured  the  right  to  claim  return  premium  for  the  unexpired 
time.  The  expression  "and  arrival"  is  a  restatement  of  this 
principle.  In  common  words  it  means  that  at  the  time  of  claim- 
ing return  premium  for  mutual  concellation  or  for  lay-up  re- 
turn the  vessels  must  have  arrived,  be  in  existence  and  in  good 
safety.  Return  premium  will  not  be  paid  if  the  vessel  has  been 
lost  or  is  missing.  Lay-up  returns  are  not  claimable  until  after 
the  expiration  of  the  policy  and  if  the  conditions  of  "and  arrival" 
were  fulfilled  at  the  end  of  the  policy  term  the  mere  fact  of  the 
subsequent  loss  of  the  vessel  will  of  course  in  no  way  affect  the 
claim  for  lay-up  return  premium. 

Extension  into  Port. — A  clause  is  usually  found  in  hull  policies 
providing  that  if  the  vessel  be  at  sea  upon  the  expiration  of  the 
policy  term,  the  policy  may  be  extended  at  a  pro-rata  monthly 
premium  until  arrival  in  good  safety  at  her  port  of  destination 
or  at  the  first  port  of  call,  provided  request  for  such  extension 
be  made  prior  to  the  expiration  of  the  policy.  Similar  privilege 
should  always  be  granted  for  extending  the  policy  to  the  port  of 
destination  if  the  vessel  be  in  distress,  or  at  a  port  of  refuge  or  at 
a  port  of  call,  the  underlying  idea  in  each  case  being  to  relieve  the 
assured  from  the  burden  of  arranging  new  insurance  when  the 
vessel  is  at  sea  or  when  it  is  in  a  disabled  or  damaged  condition. 

General  Average. — Reference  is  frequently  made  in  hull  poli- 
cies to  the  subject  of  general  average,  provision  being  made  that 
these  charges  as  well  as  salvage  charges  shall  be  payable  in  ac- 


'2:V2  M  A  h'lX  h'  I XS ( '  RA  \CE 

cordiince  with  (he  York-Antwerp  Rules,  1890,  if  so  provided  in 
the  contract  of  alfreightnieiit .  Jf  is  also  provided  that  in  cases 
wlierc  these  rules  do  not  apply  (hat  adjustment  shall  be  niatle  in 
accordance  with  the  laws  of  the  United  States.  The  York-Ant- 
werp Rules  are  considered  in  connection  with  the  subject  of  gen- 
eral average.  This  body  of  rules  was  adojited  at  an  International 
Conference  and  seeks  to  establish  a  uniform  practice  in  regard  to 
general  average  and  salvage  adjustments.  Similar  clauses  refer- 
ring to  the  York-Antwerp  Rules  appear  in  many  cargo  policies. 

"Total  Loss  Only"  Insurance. — It  is  quite  customary  for 
owners,  through  desire  or  from  necessity,  to  insure  vessels  on 
what  is  known  as  the  "total  loss  only"  form.  This  form  is 
frequently  used  in  the  insurance  of  vessels  which  because  of 
their  condition  cannot  be  written  at  favorable  rates  on  a  full 
cover  form.  It  is  also  usual  to  cover  disbursements  and  excess 
values  on  the  total  loss  only  form.  In  some  cases  this  form  of 
protection  is  broadened  to  include  general  average  and  salvage 
charges  in  addition  to  total  and  constructive  total  losses.  When 
the  value  of  vessels  is  high,  difficulty  is  often  experienced  in 
obtaining  sufficient  full  cover  insurance  and  the  final  lines  are 
accordingly  placed  on  "total  loss  only"  form.  However,  in 
order  that  the  use  of  such  insurance  shall  not  be  abused  at  the 
expense  of  the  full  form  underwriters,  clauses  have  been  devised 
limiting  the  percentage  of  the  total  amount  which  may  be 
placed  on  the  total  loss  form.  In  many  cases  owing  to  very  high 
values  these  warranties  are  waived  and  a  larger  percentage  of 
"total  loss  only"  insurance  is  permitted. 

Port  Risk  Insurance. — When  vessels  are  laid  up  in  port  for 
long  periods  of  time  undergoing  repairs  or  reconstruction  or 
without  employment,  it  is  usual  to  place  insurance  on  a  "port 
risk  only"  form.  Under  this"  form  of  policy  the  assured  often 
warrants  that  the  vessel  is  laid  up  and  out  of  commission  and  that 
the  vessel  will  be  confined  during  the  term  of  the  policy  to  the 
limits  of  the  port  described.  Privilege  is  granted  for  the  vessel 
to  change  docks  or  to  go  on  drydock  in  order  to  make  repairs  or 
alterations.  The  Collision  Clause  and  the  "Inchmaree"  clauses 
are  usually  incorporated  and  it  is  sometimes  agreed  that  average 
will  be  payable  without  reference  to  percentage,  that  is  the  aver- 
age clause  does  not  require  thai  any  fixed  frnnchise  be  attained  to 


HULL  INSURANCE  233 

make  a  claim  under  the  policy.  As  there  are  no  navigation  haz- 
ards in  connection  with  port  risk  insurance,  except  during  docking 
and  changing  docks,  the  rate  of  premium  is  low.  It  is  charged 
on  a  monthly  basis  or  at  an  annual  rate  usually  subject  to  can- 
cellation in  accordance  with  the  short  rate  tables.  These  tables 
provide  for  a  premium  charge  for  the  actual  time  at  risk  which  is 
calculated  not  as  a  pro  rata  portion  of  the  annual  rate,  but  at  a 
fixed  percentage  of  the  annual  rate.  The  short  rate  is  always 
higher  than  the  pro  rata  charge  for  the  same  period. 


ClIAPTI'lR  14 

SPECIAL  POLICY  FORMS  FOR  THE  INSUR- 
ANCE OF  HULLS 

Special  Hull  Forms. — Special  forms  are  quite  an  important 
feature  in  connection  with  hull  insurance.  These  are  not  peculiar 
to  any  one  Company,  but  have  been  formulated  by  underwriters' 
organizations  and  adopted  by  the  individual  companies  in  the 
issuance  of  theii*  policies.  The  best  talent  in  the  underwriting 
field  has  lent  its  aid  in  the  construction  of  these  forms,  and  the 
primary  idea  underlying  all  lias  been  to  offer  to  the  vessel  owner 
the  most  complete  protection  consistent  with  conservative 
underwriting  principles.  From  time  to  time  these  forms  are 
amended  as  new  situations  develop  requiring  a  broadened 
form  of  protection,  or  underwriting  experience  suggests  a  more 
restricted  form  of  policy.  Previously  the  use  of  many  different 
forms  in  hull  underwriting  led  to  confusion  and  difficulty  in  the 
making  of  adjustments.  In  cargo  insurance,  except  in  the  case 
of  very  large  accounts,  one  underwriter  will  assume  the  whole 
risk  reducing  his  line  if  he  considers  it  nccessarj^,  by  the  procure- 
ment of  reinsurance.  In  hull  underwriting,  on  the  other  hand, 
it  has  always  been  customary  to  have  several  underwriters  on  a 
single  risk,  hence  the  desirability  of  having  uniformity  among 
the  policies  issued  by  the  different  underwriters. 

Work  of  the  Hull  Associations. — The  American  Hull  Under- 
writers' Association  has  stood  in  the  forefront  in  endeavoring  to 
procure  uniform  standards  of  hull  insurance,  and  they  have 
promulgated  forms  which  are  now  in  general  use  in  this  country. 
Working  in  close  harmony  with  similar  associations  on  the  Pacific 
Coast  and  in  Great  Britain,  certain  forms  have  been  drawn  up 
which  are  practically  standard  in  all  the  underwriting  markets 
of  the  world.  Forms  for  steamer  risks,  auxiliary  sailing  vessels, 
port  risks  and  builders'  risks  have  been  recommended  for  use  by 
this  organization.  Similar  associations,  such  as  the  Atlantic 
Inland  Association,  have  drawn  up  inland  marine  forms.     Asso- 

234 


SPECIAL  POLICY  FORMS  FOR  INSURANCE  OF  HULLS     235 

ciations  of  underwriters  primarily  interested  in  the  insurance  of 
sailing  craft  such  as  the  Provincial  Schooner  Association  have 
promulgated  forms  especially  adapted  to  these  particular  branches 
of  underwriting,  and  forms  especially  designed  for  insurance  of 
vessels  on  the  Great  Lakes  are  in  common  use. 

Basis  of  All  Policies  the  Same. — While  all  of  these  retain  as 
their  basis  the  old  skeleton  form  of  policy,  particularly  the  clause 
enumerating  the  perils  insured  against,  special  clauses  are 
incorporated  dealing  with  conditions  which  are  peculiar  to  hull 
insurance  of  the  particular  kind  to  which  the  form  has  reference. 
In  designing  new  forms  there  is  always  the  danger  that  the  entire 
policy  will  be  weakened  by  the  introduction  of  clauses  which  are 
ambiguous  enough  to  permit  of  court  interpretations  foreign  to 
the  intention  of  the  underwriters,  or  which  may  undermine  the 
whole  basic  fabric  of  the  policy.  However,  it  has  been  this  same 
hesitancy  to  make  any  change  that  has  resulted  in  the  peculiar 
combination  of  words  which  clothes  the  common  form  of  marine 
policy. 

Rates  of  Premium. — On  application  by  owners  or  insurance 
brokers,  these  underwriters'  organizations  also  promulgate 
rates  of  premium  for  the  insurance  of  vessels.  The  rates  named 
are,  however,  merely  the  expression  of  an  opinion  by  the  organi- 
zation as  a  collective  body  of  underwriters  and  are  in  no  way 
binding  on  the  members.  Because  the  organization  rates  a 
vessel,  there  is  no  obligation  on  the  individual  member  of  that 
organization  to  accept  a  portion  of  the  risk.  At  times  it  is  the 
opinion  of  some  underwriters  that  a  different  rate  is  warranted 
but  in  general  the  rates  and  conditions  and  the  forms  promulgated 
are  accepted  by  the  members.  There  is,  however,  an  obligation 
on  the  part  of  the  members  not  to  accept  insurance  at  less  than 
the  promulgated  rate. 

The  A.H.U.A.  (1917  Form).— The  form  most  commonly  used 
at  present  in  the  New  York  market  for  the  insurance  of  metal 
steamers  is  known  as  the  A.H.U.A.  (1917  form)  the  initials 
symbolizing  the  American  Hull  Underwriters'  Association  and 
the  year  named  indicating  the  date  of  last  revision  (see 
appendix,  p.  373).  In  general  this  form  follows  the  basic 
principles  of  marine  underwriting  discussed  in  the  previous 
chapters,  but  contains  some  special  clauses  which  it  is  important  to 


230  .U.W.7.VA'  IXSrUAXCR 

consider.  It  should  be  noticed  that  the  simple  statement  found 
in  (he  ordinary  policy  read  inj;  "upon  I  lie  l)ody,  tackle,  apparel 
and  other  ftnniture  of  (Ik;  j^ood  ship,  etc.,"  has  been  broadened 
to  include  t  he  boilers  and  machinery  of  the  steamer.  The  original 
clause  giving  the  vessel  liberty  to  "proceed  and  sail  to,  touch 
and  stay  at  any  ports  or  places,  etc.,"  has  been  broadened  to 
permit  the  vess(!l  specially  to  do  practically  anything  that  a 
vessel  could  or  would  do  cither  in  the  ordinary  course  of  the  voyage 
or  while  in  poi't  or  under  re])air.  It  should  bo  further  noted  in 
the  sc'parate  valuation  clause  that  refrigerating  machinery  and 
insulation  pertauiing  thereto  is  not  covered  by  the  policy  unless 
expressly  included  or  unless  it  is  the  property  of  the  owners  of 
the  vessel.  It  is  quite  frequently  the  case  that  the  great  packing 
companies  who  import  frozen  and  refrigerated  meats,  under 
arrangement  with  the  owners  of  vessels,  will  equip  their  steamers 
so  that  they  will  be  fit  to  carry  these  highly  perishable  cargoes. 
Such  equipment  is  not  considered  as  part  of  the  steamer  itself, 
but  iiuist  b(!  sjjecialh'  insured. 

P.P.I,  and  F.I.A.  Interests. — A  policy  on  hull  covering 
partial  losses,  total  losses,  general  average  and  salvage  charges  is 
known  as  a  "full  form"  insurance.  The  desirability  of  "full 
form"  underwriters  restricting  so  far  as  possible  the  amount  of 
insurance  placed  over  and  above  the  full  form  insurance  has 
already  been  indicated.  In  the  form  under  consideration  an  en- 
deavor is  made  to  compass  this  end  in  the  following  warranty,  viz.  : 

"  Warranted  that  the  amount  insured  for  account  of  the  Assured  and/or 
their  managers  on  Disbursements,  Commissions  or  similar  interests  P.P.I, 
or  F.I.A.  shall  not  exceed  fifteen  percent  of  the  insured  valuation  of  the 
Vessel,  but  the  Assured  may  in  addition  thereto  effect  P.P.I,  or  F.I.A. 
insurance  on  any  of  the  following  interests: 

Premiums  (reducing  or  not  reducing  monthly)  to  any  amount  actually 
at  risk,  and 

Freight  and /or  Chartered  Freight  and /or  Anticipated  Freight  and /or 
Earnings  and/or  Hire  or  Profits  on  Time  Charter  and/or  Charter  for  series  of 
voyages  for  any  amount  not  exceeding  in  the  aggregate  twenty-five  percent 
of  the  insured  valuation  of  the  Vessel;  and  if  the  actual  amount  at  risk  on 
any  or  all  of  such  interests  shall  exceed  such  twenty-five  percent  of  the 
insured  valuation  of  the  Vessel,  the  Assured  and/or  their  managers  may, 
without  prejudice  to  this  warranty,  insure  whilst  at  risk  the  excess  of  such 
interests  reducing  as  earned. 

Provided  always  that  a  breach  of  this  warrant}'  shall  not  afford  under- 


SPECIA L  POLICY  FORMS  FOR  INSURANCE  OF  HULLS     237 

writers  any  defense  to  a  claim  by  mortgagees  or  other  third  parties  who  may 
have  accepted  this  policy  without  notice  of  such  breach  of  warranty,  nor 
shall  it  restrict  the  right  of  the  Assured  and /or  their  managers  to  insiu-e  in 
addition  General  Average  and/or  Salvage  Disbursements  whilst  at  risk." 

The  interests  specified  in  this  warranty  are  real  interests  but 
may  not  be  susceptible  of  proof  by  documentary  evidence, 
hence  tiie  insurance  is  made  under  P.P.I,  and  F.I.A.  conditions. 
The  underwriter  in  granting  insurance  on  these  conditions  mutu- 
ally agrees  with  the  assured  that  the  mere  fact  of  the  existence  of 
the  policy  proves  the  interest  and  that  between  them  so  far  as 
the  policy  is  concerned,  the  full  interest  of  the  assiu'ed  to  the 
extent  of  the  amount  of  the  policy  is  admitted. 

Purpose  of  the  Disbursements  Warranty. — This  warranty  has 
the  effect  of  requiring  the  assured  to  place  under  full  form  insur- 
ance such  a  proportion  of  the  total  value  of  his  vessel,  that  the  ex- 
cess amounts  insured  as  disbursements,  commissions  or  similar 
interests,  freights,  etc.,  shall  not  exceed  a  total  of  forty  percent  of 
the  full  form  value.  If  there  be  actual  freight  interests  at  risk  in 
excess  of  twenty-five  percent,  the  warranty  is  not  violated  by  the 
insurance  of  such  excess  as  underwriters  could  not,  of  course,  pre- 
vent the  insurance  of  a  valid  freight  interest  at  risk,  no  matter  how 
large  it  might  be.  However,  it  is  stipulated  that  such  insurance 
must  be  reduced  as  the  freight  is  earned  until  the  total  of  such 
interests  comes  within  the  twenty-five  percent  limit.  The  explana- 
tion of  the  various  freight  interests  enumerated  will  be  left  for  the 
following  chapter;  it  will  suffice  for  the  present  to  state  that 
freight  is  the  money  which  the  owner  receives  either  under  charter 
or  under  bill  of  lading  for  the  use  of  his  vessel.  A  similar  exception 
is  made  in  the  warranty  in  relation  to  premiums.  This  too  being 
a  valid  insurable  interest,  underwriters  could  not,  if  they  would, 
prevent  its  full  insurance.  This  entire  clause  is  aimed  not  at  the 
insurance  of  valid  interests  arising  out  of  the  ownership  of 
vessel  property,  but  at  the  practice  of  endeavoring  to  obtain 
cheap  insurance  by  placing  an  undue  portion  of  the  value  of  a 
vessel  under  P.P.I,  conditions  at  the  comparatively  low  rate 
prevailing  for  this  form  of  insurance,  thus  lowering  the  full  form 
value  and  in  turn  the  premium  developed  thereon,  while  the 
underwriters'  liability  for  partial  losses  remains  to  a  great  extent 
unchanged. 

17 


238  MARINE  INSURANCE 

Breach  of  Warranty  with  Respect  to  Innocent  Parties. — 
It  is  further  provided  that  a  l)r(!ach  of  tliis  warranty  as  to  P. P. I. 
insurance  shall  not  affect  the  validity  of  the  policy  with  respect 
to  innocent  third  parties,  such  as  mortgagees,  who  may  have 
accepted  the  policy  without  notice  of  such  breach,  nor  shall  the 
warranty  restrict  the  right  of  the  assured  to  insure  disbursements 
made  on  account  of  general  average  and  for  salvage  while  such 
disbursements  are  at  risk.  The  disbursements  referred  to  are 
amounts  which  the  owners  of  the  vessel  may  advance  for  the 
benefit  of  all  concerned  in  the  event  of  a  casualty  having  occurred 
which  involves  general  average  or  salvage  expenses. 

Average  Clause. — The  usual  form  of  three  percent  average 
clause  appears  in  this  form  of  policy.  One  of  the  casualties  enu- 
merated in  this  clause  is  stranding,  and  in  order  that  underwriters 
may  be  relieved  of  petty  claims  arising  out  of  technical  strandings, 
it  is  stipulated  in  a  separate  clause  that  grounding  in  the  Panama 
Canal,  the  Suez  Canal,  the  Manchester  Ship  Canal,  or  in  certain 
other  enumerated  waterways,  "shall  not  be  deemed  a  stranding." 
The  use  of  these  channels  at  certain  stages  of  the  water  may  make 
grounding  a  natural  occurrence  and  the  underwriter  by  this 
stipulation  seeks  to  avoid  claims  for  these  inevitable  happenings. 
Furthermore,  it  is  provided  in  the  average  clauses  that  in  the 
event  of  stranding,  the  underwriters  shall  pay  the  expense  of 
sighting  the  bottom,  that  is  drydocking  the  vessel,  if  reasonably 
incurred,  even  if  no  damage  be  found.  This  provision  places 
the  underwriters  in  a  strong  position  to  insist  on  the  examination 
of  the  vessel's  bottom  for  possible  injury,  even  if  the  owner 
prefers,  owing  to  the  delay  involved,  to  defer  such  examination  to 
a  more  convenient  time.  On  the  other  hand,  if  the  assured  should 
drydock  his  vessel  after  a  grounding  in  one  of  the  excepted  water- 
courses, the  expense  involved  would  not  be  at  the  charge  of  the 
underwriters  as  the  casualty  would  not  be  a  stranding  within  the 
meaning  of  the  policy. 

Sale  or  Transfer  of  Ownership. — Provision  is  made  that 
in  the  event  of  the  sale,  or  the  transfer  of  the  ownership  of  the 
vessel,  the  policy  shall  be  null  and  void  from  the  date  of  the  sale 
or  transfer  unless  the  underwriters  agree  in  writing  to  continue  the 
insurance  for  the  new  owners.  This  is  in  order  that  the  under- 
writer may  relieve  himself  of  the  necessit}^  of  continuing  the 


SPECIAL  POLICY  FORMS  FOR  INSURANCE  OF  II IJLLS    239 

policy  if  the  new  ownership  is  not  satisfactory  to  him.  Exception 
is  made  if  the  vessel  be  at  sea,  either  with  cargo  or  in  ballast,  in 
which  case  cancellation  is  suspended  until  the  vessel  arrives  at 
final  port  of  discharge  if  with  cargo  or  at  port  of  destination  if  in 
ballast.  This  exception  is  made  in  order  to  relieve  the  new 
owners  of  the  difficulty  of  replacing  the  insurance  while  the 
vessel  is  at  sea. 

Contributory  Values. — Early  in  the  World  War  when  ship 
values  began  to  increase  by  leaps  and  bounds  underwriters, 
in  certain  cases  of  general  average  sacrifices  and  salvage  expendi- 
tures, were  held  liable  for  these  charges  assessed  against  the  ves- 
sel on  her  appraised  value,  in  the  proportion  which  the  amount 
insured  by  them  bore  to  the  insured  value.  Thus,  instead  of 
being  held  liable  for  their  percentage  of  the  portion  of  the  assess- 
ment applicable  to  the  policy  value,  they  were  held  liable  for 
the  same  percentage  of  the  entire  assessment.  Accordingly, 
to  avoid  this  difficulty,  the  following  amendment  to  the  policy 
form  was  inserted,  viz.: 

"Where  the  assured  has  paid,  or  is  liable  for,  any  general  average 
contribution  and  the  contributory  value  is  greater  than  the  insured 
value,  the  amount  recoverable  under  this  policy  shall  be  only  in  the 
proportion  that  the  amount  insured  hereunder  bears  to  the  contributory 
value  and  where  the  contributory  value  has  been  reduced  by  a  par- 
ticular average  for  which  these  assurers  are  liable,  the  amount  of  par- 
ticular average  claim  under  this  policy  shall  be  deducted  from  the 
amount  insured  under  the  policy  in  order  to  ascertain  what  share  of 
the  contribution  is  recoverable  from  these  assurers;  the  extent  of  the 
liability  of  these  assurers  for  salvage  shall  be  computed  on  the  same 
l)rinciple." 

This  provision  hannonizes  with  the  British  practice  in  similar 
cases  as  set  forth  in  Section  73  of  the  Marine  Insurance  Act  (see 
appendix,  p.  406). 

Effect  of  Breach  of  Cargo  and  Trade  Warranties. — It  is  also 
provided  in  the  form  that  breach  of  warrant}^  as  to  cargo,  trade, 
locality  or  date  of  sailing  will  not  void  the  policy,  provided  notice 
of  such  breach  or  proposed  breach  be  immediately  given  to  the 
underwriters  and  such  additional  permium  paid  as  may  be  re- 
quired. The  form  also  contains  the  usual  war  or  "free  of  cap- 
ture and  seizure"  clause  relieving  the  underwriter  from  liability 


240  MAh'fM':  IXSrUAXCl'] 

for  war  losses.  A  pciializinjj;  clause  is  also  inserted  in  order  to 
make  the  assured  promptly  notify  the  underwriters  of  survej^s 
of  the  vessel  to  ascertain  the  extent  of  damage  sustained  and  to 
make  the  assured  take  tenders  for  the  repair  of  such  damage 
rather  than  make  private  contracts  for  them.  Other  clauses 
are  inserted  in  regard  to  cancellation  for  non-jxiyment  of  pre- 
miums and  other  matters  concerning  adjustment  of  losses  of 
which  explanation  is  not  necessary  here. 

Lake  Time  Clauses. — The  insurance  of  steamers  plying  on 
the  Great  Lakes  and  waters  tributary  thereto  is  so  different  in 
many  respects  from  the  insurance  of  vessels  operating  on  the 
oceans  that  a  special  form  known  as  the  "Lake  Time  Clauses" 
(see  appendix,  p.  382)  has  been  promulgated  by  the  underwriters. 
An  organization  composed  of  vessel  owners  and  known  as  the 
Great  Lakes  Protective  Association  has  done  much  to  improve 
conditions  of  management  and  operation  on  the  Lakes  and  as  an 
earnest  of  their  belief  in  its  efficiency  it  carries  twenty-five 
percent  of  the  value  of  the  vessels  entered  in  the  association  in  its 
insurance  fund.  Accidents  because  of  faulty  navigation  have 
materially  decreased  under  the  influence  of  the  association.  It 
will  be  observed  that  the  Great  Lakes  consist  of  large  bodies  of 
water  connected  by  narrow  channels,  and  owing  to  the  conges- 
tion in  these  connecting  channels  accidents  were  of  frequent 
occurrence  until  the  Protective  Association  became  powerful 
enough  to  control  in  a  measure  the  navigation  of  these  waters. 
Severe  penalties  for  faulty  navigation  of  member  vessels  have 
done  much  to  remedy  the  former  reckless  striving  of  masters  to 
make  lower  lake  ports  regardless  of  the  danger  the}'  themselves 
incurred  and  the  menace  their  faulty  navigation  was  to  other 
vessels.  An  organization  of  Canadian  vessel  owners  is  also  per- 
forming a  similar  service  with  respect  to  vessels  under  Canadian 
registry. 

Restrictions  as  to  Navigation. — Perhaps  the  outstanding  fea- 
ture of  the  Lake  form  is  the  navigation  restrictions  which  are 
definitely  set  forth.  The  Great  Lakes  are  navigable  for  a  portion 
of  the  year  only,  since  conditions,  prior  to  April  l(jth  and  after 
November  30th,  ordinarily  making  navigation  impossible  or  extra 
hazardous.  These  are  the  limits  fixed  for  the  operation  of  metal 
steamers,  while  wooden  vessels  are  further  restricted  to  sailings 


SPECIAL  POLTrr  FORMS  FOR  INSirRANOE  OF  HULLS     241 

between  May  1st  and  November  15th  inclusive.  The  restrictive 
dates  are  sailing  dates,  vessels  being  permitted  to  proceed  to 
destination  even  if  some  time  elapses  subsequent  to  November 
15th  or  November  30th  as  the  case  may  be.  Geographically, 
navigation  is  limited  to  the  Great  Lakes  and  their  tributaries  not 
below  Lake  Erie  but  including  the  Niagara  River.  These  are  the 
basic  warranties  upon  which  the  rate  of  premium  is  calculated. 
At  the  foot  of  the  policy  there  is  added  a  schedule  of  options  which 
may  be  exercised  providing  for  navigation  prior  or  subsecjuent 
to  the  commencement  or  termination  of  the  time  warranties  in 
the  case  of  steel  steamers.  It  often  happens  that  an  open  season 
will  permit  early  and  late  navigation  and  as  the  government  aids 
to  navigation  are  not  removed  until  about  the  middle  of  Decem- 
ber, such  post  season  navigation  does  not  incur  any  unduly  haz- 
ardous risk.  The  additional  premiums  charged  for  these  post- 
season sailings  are  considerable,  while  the  ante-season  sailings 
are  charged  at  pro-rata  of  the  season  rate,  such  navigation  being 
permitted  or  being  possible  only  in  the  case  of  an  early  spring. 
It  will  be  observed,  however,  that  none  of  these  extra  sailings  are 
covered  unless  special  notice  is  given  to  the  underwriters. 

Extension  of  Navigation  Limits. — Also  in  consideration  of 
additional  premium  liberty  is  granted  vessels  to  proceed  to  ports 
below  Lake  Erie,  though  such  navigation  is,  of  course,  restricted 
by  physical  conditions.  The  Welland  Canal  and  the  canals  on 
the  St.  Lawrence  River  are  large  enough  to  accommodate  only  the 
smaller  boats  operating  on  the  Great  Lakes.  In  fact  the  whole 
of  lake  navigation  is  controlled  by  the  capacity  and  depth  of  the 
channels  whether  river  or  canal,  connecting  the  various  lakes. 
Much  money  has  been  spent  by  the  American  and  Canadian 
Governments  in  the  improvement  of  these  waterways,  but  the 
increase  in  size  of  lake  vessels  has  kept  pace  with  the  increased 
depth  in  the  channels. 

Winter  Mooring  Clause. — Notwithstanding  the  fact  of  these 
time  and  trading  warranties,  lake  hull  policies  are  ordinarily 
written  for  a  period  of  one  year,  the  vessels  being  laid  up  and  out 
of  commission  during  the  closed  season.  A  clause  called  the 
"Winter  Moorings  Clause"  is  accordingly  incorporated  in  the 
policy  providing  that  winter  mooring  must  be  in  places  and  under 
conditions  satisfactory  to  the  underwriters.     A  regular  inspect  ion 


242  MARINE  INSURANCE 

service  of  wiiitcr  moorings  is  maintaiiuHl  by  the  undorwrilers  with 
the  result  that  conditions  in  tliis  respect  have  greatly  improved 
in  recent  years.  It  is  interesting  to  note  in  this  connection  that 
owing  to  the  congestion  in  the  handling  of  grain  cargoes  on  the 
lakes  it  is  customary  for  vessels  at  the  lower  lake  ports  to  retain 
their  grain  cargoes  on  the  last  trip  down,  discharging  the  grain 
from  time  to  time  during  the  winter  as  the  congestion  at  the 
grain  elevators  is  relieved.  In  like  manner  grain  is  loaded  on 
vessels  moored  at  upper  lake  ports  during  the  winter  and  stored 
pending  the  opening  of  navigation,  when  the  vessel  fully  loaded 
proceeds  to  her  destination.  This  system  of  winter  storage  of 
grain  aids  greatly  in  the  movement  of  the  grain  crop. 

Deductible  Average  Clause. — Instead  of  having  the  average 
clause  customary  in  the  insurance  of  ocean  vessels,  a  deductible 
average  clause  with  a  deductible  franchise  of  $500  is  found  in  the 
Lake  form.  Adjustments  are  made  on  the  basis  of  a  three  percent 
average  clause  but  from  the  claim  as  adjusted  on  each  accident 
there  is  deducted  this  $500.  In  the  event  of  total  or  constructive 
total  loss  no  such  deduction  is  made.  It  is  further  provided  that 
on  vessels  sailing  during  April  or  December  the  underwriters 
shall  be  liable  only  for  the  excess  of  three  percent  each  accident  on 
the  insured  value  with  respect  to  all  clamis  arising  from  damage 
by  ice,  except  total  or  constructive  total  loss  so  caused.  The 
Collision  clause  also  contains  the  $500  deductible  franchise. 

Lay-up  Clause.  Change  of  Interest. — As  lake  vessels  are 
permitted  to  navigate  only  during  the  open  season,  the  vessels 
must  be  laid  up  in  port  at  all  other  times.  The  provision  for 
lay-up  returns  therefore  applies  only  to  lay-ups  occurring  during 
the  season  of  navigation,  while  the  portion  of  the  annual  rate 
applying  to  the  closed  season  represents  merely  a  port  risk  charge. 
It  is  also  provided  that  change  of  interest  in  the  vessel  insured  will 
not  affect  the  validity  of  the  policy.  In  this  the  policy  differs 
materially  from  other  forms  where  it  is  usual  to  require  the 
assent  of  the  underwriter  to  a  change  of  interest.  It  is  also  cus- 
tomary to  incorporate  in  Lake  Policies  a  Protection  and  Indemnity 
Clause  which  is  very  broad  in  the  protection  afforded,  even  ex- 
tending to  claims  for  loss  of  life  and  personal  injury,  unless  such 
claims  are  made  under  Workman's  compensation  or  other 
similar  acts. 


SPECIAL  POLICY  FORMS  FOR  INSURANCE  OF  HULLS     243 

Wooden  Sailing  Vessels. — Policies  written  to  cover  the  hulls  of 
wooden  sailing  vessels  display  few  peculiarities,  these  policies 
ordinarily  being  written  on  forms  that  adhere  verj^  closely  to 
the  original  basic  form  of  policy.  The  average  franchise  is 
usually  five  percent,  with  provision  made  in  some  policies  for 
a  minimum  claim  for  partial  loss  of  $500.  The  ' '  thirds  off ' '  clause 
is  usually  incorporated  with  various  modifications  respecting 
anchors,  chains,  yellow  metal  or  sheathing  and  other  metal  parts 
of  the  vessel.  The  collision  clause  is  usually  in  the  three-quarter 
form,  the  owner  bearing  one-quarter  of  this  liability.  The  under- 
writing of  wooden  saihng  vessels  is  engaged  in  by  only  a  limited 
portion  of  the  insurance  market.  The  amounts  to  be  placed  are 
relatively  small,  and  the  risks  involved  are  naturally  more  haz- 
ardous that  in  the  case  of  mechanically  propelled  metal  vessels. 
In  fact  the  wooden  sailing  vessel  business  was  in  a  decadent  con- 
dition at  the  outbreak  of  the  World  War.  The  powered  vessel 
had  driven  the  few  remaining  wooden  ships  into  the  carrying  of 
rough  cargoes  such  as  coal  and  lumber  in  the  coastwise  trade. 
The  demand  for  tonnage,  however,  caused  a  revival  of  the  wooden 
sailing  vessel  and  within  recent  years  many  ships  of  this  type 
have  been  built.  Unfortunately,  tempted  by  high  freight  rates 
the  owners  of  many  of  these  vessels  entered  them  in  trade  across 
the  North  Atlantic,  a  service  for  which  they  were  poorly  adapted, 
with  the  result  that  many  fell  a  prey  to  marine  perils  while  numer- 
ous others  because  of  their  lack  of  speed  and  of  control  became 
victims  of  submarines. 

Wooden  Steamers. — The  new  types  of  wooden  steamers  de- 
veloped as  a  war  emergency  measure  have  presented  a  very 
serious  problem  to  marine  underwriters.  The  idea  of  the  wooden 
steamer,  of  course,  is  not  new,  since  the  first  steamers  built  were 
of  this  material,  but  the  building  of  large  high-powered  wooden 
steamers  of  green  or  unseasoned  wood  by  inexperienced  ship- 
builders is  a  distinctly  new  departure.  The  forebodings  of 
underwriters  in  regard  to  these  vessels  have  been  amply  justified 
by  the  recent  limited  but  significant  experience.  Poor  work- 
manship by  inexperienced  ship  carpenters,  insufficient  fastenings 
and  green  wood  have  produced  steamers  not  fitted  for  ocean 
service,  with  the  inevitable  result  that  in  many  cases,  a  short  time 
after  sailing  they  have  returned  to  port  leaking  or  otherwise 


244  MMilNE  INSURANCE 

in  (lis(i(>ss.  Uiulerwrilers  have  accordingly  hesitated  to  assume 
the  insurance  of  tiiesc  vessels.  Such  insiiiance  as  has  been 
granted  has  l)ecn  written  on  "free  of  particular  average  American 
conditions"  terms,  to  which  has  been  added  a  deductible  average 
clause.  'J'he  trading  warranties  are  also  very  restricted  practi- 
cally, confining  the  vessels  to  the  United  States  Coastwise  Trade. 
Under  this  form  of  'policy  the  owner  assumes  a  considerable 
portion  of  the  risks  involved.  Whether  or  not  the  underwriting 
of  these  risks  under  this  very  limited  form  of  policy  will  be  profit- 
al)lc,  time  alone  will  jirove. 

The  Internal  Combustion  Engine. — Within  the  last  ten  years 
considerable  energ}^  has  been  devoted  to  the  construction  of  a 
practical  marine  internal  combustion  engine.  The  demand  for 
tonnage  has  given  new  impetus  to  the  construction  and  improve- 
ment of  this  type  of  motive  power.  Large  internal  combustion 
engines  have  been  installed  as  the  sole  motive  power  of  large- 
sized  tramp  vessels,  and  such  ships  have  been  operated  with 
considerable  success.  This  type  of  carrier  is  known  as  the  motor 
vessel.  Plowcver,  a  hybrid  vessel,  taking  a  place  nddway  be- 
tween the  wooden  schooner  and  the  motor  vessel  has  made  its 
appearance  in  large  numbers  and  has  brought  to  underwriters  a 
numl)er  of  new  and  perplexing  problems.  The  vessels  are 
known  as  auxiliaries,  depending  for  their  motive  power  partly-  on 
their  sails  and  partly  on  the  internal  combustion  engines  with 
which  they  are  equipped. 

The  AuxiUary  Sailing  Vessel. — Theoretically  the  idea  under- 
lying tiiis  type  of  vessel  is  excellent.  In  fair  weather  and  fa vor- 
al)le  winds  the  sail  power  can  be  used,  the  oil  fuel  being  conserved 
imless  indeed  increased  speed  is  desired  when  both  forms  of 
motive  power  can  be  used  conjointly.  In  foul  weather  when  an 
ordinary  sailing  vessel  might  be  driven  far  from  her  course,  en- 
tailing nuich  delay  in  the  prosecution  of  the  voyage  the  aux- 
iliary vessel  with  her  mechanical  power  can  at  least  be  kept  on 
her  course,  even  if  little  forward  progress  is  being  made.  Most 
of  these  vessels  have  l)een  constructed  of  wood,  many  of  them  on 
the  Pacific  Coast  where  excellent  ship  lumber  maybe  obtained 
at  reasonable  cost.  Faulty  design  in  the  early  forms  of  this  t^-j^e 
produced  vessels  which  were  neither  sufficiently  ecjuipped  with 
sail  or  mechanical  power  rendering  them  subject  to  the  mercy 


SPECIAL  I'OIJCY  I'OnMS  FOJi'  Ii\'STIRANCE  OF  HULLS     245 

of  the  waves  and  wind  in  heavy  weather.  Other  vessels  were  too 
Hghtly  built  to  withstand  the  extra  weight  of  the  motor  engines 
and  the  vibration  caused  by  their  operation.  It  has  also  been  diffi- 
cult to  fasten  these  comparatively  heavy  engines  to  their  wooden 
beds,  so  that  they  will  not  loosen  under  operation. 

Defects  in  Motive  Power. — While  most  of  the  faults  of  this 
nature  have  been  remedied,  the  fact  remains  that  because  of 
the  engines  themselves  the  hazard  in  connection  with  the  insur- 
ance of  these  vessels  is  very  great,  and  the  experience  of  under- 
writers in  insuring  them  has  been  exceedingly  bad.  It  is  difficult 
to  determine  whether  the  fault  is  with  a  new  type  of  engine  which 
has  not  yet  been  perfected  to  the  point  where  it  is  entirely  depend- 
able as  a  marine  engine,  or  whether  the  fault  is  with  the  inexperi- 
ence of  the  engineers,  who,  trained  in  the  use  of  the  steam  engine, 
are  unfamiliar  with  the  peculiarities  of  an  explosive  motor.  Per- 
haps a  combination  of  both  reasons  would  give  the  true  cause  of 
the  many  accidents  which  have  happened  to  the  motive  power 
of  these  vessels  resulting  in  heavy  claims  on  the  underwriters. 

A.H.U.A.  Auxiliary  Sailing  Vessel  Form.  —  To  overcome 
the  weaknesses  which  have  appeared  in  the  underwriting  of  these 
vessels  and  to  place  the  business  on  a  safer  foundation  the 
American  Hull  Underwriters' Association  has  recently  promulgated 
a  form  for  the  insurance  of  Auxiliary  Sailing  Vessels  either  of 
wood  or  steel  construction  and  for  Wooden  Motor  Ships.  This 
form  (see  appendix,  p.  377)  is  a  combination  of  the  A.H.U.A. 
steamer  form  and  the  Boston  Schooner  form  and  follows  in  general 
the  wording  of  these  two  forms  with  some  restrictions  as  to  loading 
and  trading.  The  "thirds  off"  clause  with  modifications  is  in- 
serted and  the  collision  clause  is  in  the  three  quarter  liability  form. 
The  chief  point  of  difference  as  may  be  expected  in  view  of  the 
foregoing  remarks,  is  in  connection  with  the  average  clause  as  it 
applies  to  the  machinery  of  the  vessel.  The  clause  inserted 
with  respect  to  machinery  claims  is  the  result  of  evolution. 
The  original  clauses  applying  to  such  claims  provided  that, 
in  the  event  of  particular  average  on  the  machinery,  the 
underwriters  would  not  be  liable  except  for  the  excess  of  ten 
percent  upon  the  insured  value  of  the  machinery  in  respect  of 
each  accident.  Experience  soon  showed  that  machinery  claims 
arising  out  of  minor  accidents  quickly  exceeded  the  ten  percent 


24 ()  MAh'fNE  INSURANCE 

deduct  il)le  fnmchise,  and  on  account  of  the  incorporation  of  the 
"Inchmaree"  clause  the  underwriters  were  held  liable  for  the 
many  losses  resulting  from  the  inexperience  of  the  engineers. 
Accordingly,  a  new  clause  was  adopted  which  made  the  under- 
writers liable  for  only  machinery  losses  caused  by  stranding, 
sinking,  burning  or  collision  with  another  vessel.  This  clause 
effected  an  improvement  in  the  experience  of  underwriters,  but 
since  losses  continued  in  large  amounts  the  new  form  contains 
a  still  more  drastic  clause  reading  "Free  from  particular  average 
on  machinery  and  everything  connected  therewith  unless  caused 
by  stranding,  sinking,  ])urning  or  collision  and  from  all  such 
claims  there  shall  be  deducted  ten  percent  of  the  valuation  herein  of 
machiJiery." 

The  Future  of  Auxiliary  Vessels. — Whether  or  not  this  new 
form  will  put  the  underwriting  of  these  vessels  on  a  paying  basis 
remains  to  be  seen.  It  is,  however,  quite  probable  that  until  a 
body  of  engineers  is  trained  in  the  operation  and  care  of  these 
engines  heav>'  losses  will  occur.  The  placing  of  a  considerable 
share  of  the  burden  of  such  damage  on  the  owners  will  however  do 
much  in  speeding  up  the  training  of  men  in  the  intricacies  of 
these  verj^  delicate  machines.  This  type  of  vessel  can  serve  a 
very  useful  purpose  in  the  World's  commerce  and  while  under- 
writers as  usual  are  interested  in  the  development  of  new  vessel 
types,  they  can  hardly  be  expected  to  shoulder  the  burden  of 
paying  for  the  experience  necessary  to  perfect  them.  Under- 
writers in  the  past  have  done  much  to  bring  vessels  to  the  high 
standards  which  now  prevail,  because  of  their  unwillingness  to 
assume  risks  on  those  wliich  were  not  properly  constructed  and 
equipped  for  the  employment  to  which  they  were  assigned.  So 
in  tlus  case,  severe  policy  conditions  will  give  added  impetus  to 
the  perfecting  of  the  motor  and  of  the  skill  of  men  operating 
the  engines. 

Builder's  Risks. — ^Marine  underwriters  in  recent  years  have 
undertaken  a  new  l^ranch  of  insurance,  that  of  builders'  risks. 
This  form  of  insurance  while  based  on  the  old  form  of  policy  is 
so  very  different  in  the  protection  given  that  a  special  form  of 
policy  has  been  designed  in  order  to  furnish  the  kind  of  insurance 
desired  by  builders.  It  will  be  observed  that  up  to  the  point 
where  a  n(>w  vessel  is  actually  launched,  there  is  really  no  marine 


SPECIAL  POLICY  FORMS  FOR  INSURANCE  OF  HULLS     247 

hazard.  The  protection  afforded  prior  to  that  time  is  purely 
a  shore  cover,  except  in  so  far  as  materials  designed  for  the  vessel 
may  be  afioat  on  barges  or  other  craft  at  the  builders'  yards 
or  in  transit  to  the  shipj^ard.  In  the  builders'  risk  form  of 
policy  in  present  use,  designed  to  overcome  abuses  which  entered 
into  the  writing  of  this  class  of  insurance,  the  underwriter 
attaches  his  risk  from  the  date  of  the  laying  of  the  keel  of  the 
vessel.  Premium  is  charged  from  that  date  on  the  total  amount 
for  which  he  would  be  liable,  should  the  vessel  become  a  total 
loss  after  completion,  but  before  delivery.  (See  Appendix  p.  380.) 
Special  Hazards  Insured  Against. — In  addition  to  the 
perils  set  forth  in  the  ordinary  form  of  marine  insurance  policy 
the  underwriters  on  a  builders'  risk  policy  also  assume  liability 
for  the  risks  set  forth  in  the  following  clause: 

"This  insurance  is  also  to  cover  all  risks,  including  fire,  while  under 
construction  and/or  fitting  out,  including  materials  in  buildings,  work- 
shops, yards  and  docks  of  the  assured,  or  on  quays,  pontoons,  craft, 
etc.,  and  all  risks  while  in  transit  to  and  from  the  works  and/or  the 
vessel  wherever  she  may  be  lying,  also  all  risks  of  loss  or  damage  through 
collapse  of  supports  or  ways  from  any  cause  whatever,  and  all  risks  of 
launching  and  breakage  of  the  ways." 

The  foregoing  clause  outlines  the  protection  afforded  up  to  the 
point  of  the  vessel  taking  the  water.  The  underwriter  further 
obligates  himself,  in  the  case  of  failure  to  launch,  to  bear  all 
subsequent  expenses  incurred  in  completing  the  launching. 
It  occasionally  happens  that  through  some  miscalculation  in  the 
construction  of  the  ways  or  through  some  mishap  to  them,  caused 
frequently  by  their  sinking  due  to  an  insecure  foundation,  that 
a  vessel  will  fail  to  slide  into  the  water  causing  serious  damage 
not  only  to  ship  itself  but  to  the  ways.  There  is  great  danger 
that  in  failure  to  launch,  the  whole  structure  of  the  ship  will  be 
strained.  The  expense  of  completing  the  launch  and  repairing 
the  ways  and  the  ship  is  at  the  risk  of  the  builders'  risk  under- 
writers. 

Risks  after  Launching. — The  vessel  having  been  successfully 
launched,  the  underwriter  continues  on  the  risk  and  assumes 
liability  for  all  damage  during  the  trial  trips  and  all  hazards 
while  proceeding  to  and  returning  from  the  trial  course.     The 


218  MAin.M-:  IXSlh'AACE 

policy  contains  tlu;  lull  loiu-louiilis  collision  clause,  und  with 
respect  to  average,  agrees  1o  pay  all  losses  irrespective  of  per- 
centage without  the  deduction  of  thirds  whether  the  average 
be  particular  or  general.  In  the  case  of  government  vessels, 
liberty  is  granted  for  the  testing  of  the  guns  and  torpedoes  of 
the  warshi]),  l)ut  in  the  event  of  loss  or  damage  to  the  ship  or 
machinery  resulting  from  such  test,  the  underwriter  assumes 
no  liability  therefor,  unless  the  casualty  results  in  the  total  loss 
of  the  vessel.  In  the  case  of  submarines,  part  of  the  testing 
consists  in  the  submersion  and  emersion  of  the  vessel  and  the 
underwriter  is  liable  foi  any  mishap  which  may  occur  during  this 
test .  Sul)marines  have  at  t  imes  successfully  submerged  but  have 
failed  to  emerge  causing  considerable  exi)ense  in  raising  the  vessel. 

Underwriter  Guarantees  Integrity  of  Material. — The  builders' 
risk  form  is  so  broad  in  the  protection  afforded  that  the  under- 
writer in  reality  guarantees  the  integrity  of  the  materials  entering 
into  the  construction  of  the  vessel.  If  on  the  trial  trip  defects 
become  manifest  which  necessitate  overhauling  and  additional 
expenses,  claim  for  such  loss  is  responded  for  by  the  underwriter. 
For  instance,  on  the  trial  trij)  on  account  of  the  working  of  the 
engines  a  flaw  may  develop  in  the  bed-plate  of  the  engine  neces- 
sitating the  stripping  of  the  engine  and  the  placing  of  a  new 
bed-plate.  The  actual  cost  of  a  new  bed-plate  may  in  itself 
be  small,  but  the  necessary  expense  involved  in  the  installation 
of  the  new  plate,  in  some  cases  results  in  very  heavy  claims. 

Special  Clauses  and  Warranties. — In  the  builders'  risk  form  of 
policy  the  underwaiter  also  agrees  to  cover  all  damage  to  hull, 
machinery,  apparel  or  furniture  caused  by  the  settling  of  the 
stocks  on  which  the  vessel  is  being  built  or  failure  or  breakage  of 
shores,  blocking  or  staging,  or  of  hoisting  or  other  gear,  either 
before  or  after  launching  and  while  fitting  out.  The  pohcy  also 
contains  the  "Inchmaree"  clause  and  the  Protection  and  Indem- 
nity clause,  not,  however,  assuming  liability  for  loss  of  life  or 
personal  injury.  The  collision  clause  is  extended  to  cover  risks 
ordinarily  excluded  by  this  clause,  that  is,  responsibility  for  any 
sum  which  the  assured  may  become  liable  to  pay,  or  shall  pay  for 
removal  of  obstructions  under  statutory  powers,  or  for  injury  to 
harbors,  wharves,  piers,  stages,  and  similar  structures.  Owing  to 
the  very  broad  protection  afforded  by  the  builder's  risk  form, 


SPECIAT.  PDTJCY  FORMS  FOR  IXSURAXCE  OF  HIIJ.S     240 

underwriters  find  it  prudent  to  insert  warranties  excluding  certain 
perils.  One  of  these  relieves  the  underwriters  from  claims  arising 
directly  or  indirectly  under  workmen's  compensation  or  em- 
ployer's liability  acts  and  any  other  statutory  or  common  law 
liability  with  respect  to  accidents  to  any  person  or  persons 
whatsoever.  The  free  of  capture  and  seizure  clause  and  the 
strikers  and  locked-out  workmen  clause  are  also  inserted.  In 
order  to  offset  the  danger  that  might  ensue  to  vessels  being  built 
at  yards  on  the  Pacific  Coast  through  earthquake  shocks,  a 
warranty  is  inserted  freeing  the  underwriter  from  loss  or  damage 
caused  by  earthquakes.  While  the  underwriter  is  liable  for  the 
repair  of  damages  resulting  during  launching  and  trial  trips, 
yet  by  warranty  he  declines  to  assume  liability  for  any  conse- 
quential damage  or  claims  for  loss  through  delay,  however 
caused.  Formerly,  under  builders'  risks  policies  it  was  customary 
to  insure  property  while  being  conveyed  from  the  jjlace  of  manu- 
facture to  the  vessel,  as  in  the  case  of  submarine  engines  built 
on  the  East  Coast  for  installation  in  submarines  being  built 
on  the  West  Coast,  but  by  warranty  this  risk  is  now  excluded 
from  the  policy.  It  must  be  borne  in  mind,  however,  that 
several  of  these  warranties  may  be  waived  by  the  payment  of  an 
additional  premium. 

Return  Premiums. — With  respect  to  the  question  of  return 
premimn  in  builders'  risks  policies,  in  the  event  of  a  vessel 
being  completed  prior  to  the  expiration  of  the  policy  term, 
provision  is  made  for  the  payment  of  pro  rata  return  premium  for 
the  months  not  commenced  upon.  The  underwriter,  however, 
stipulates  that  in  any  event,  such  return  premium  shall  not 
exceed  a  fixed  portion  of  the  total  premium.  This  is  necessary 
in  view  of  the  great  rapidity  with  which  ships  are  being  produced 
at  the  present  time.  Were  an  underwriter  to  receive  only  one- 
twelfth  of  the  annual  rate  for  a  steel  steamer  completed  in  less 
than  one  month,  the  business  would  not,  at  the  low  rates  pre- 
vailing, develop  a  sufficient  fund  of  premium  with  which  to  pay 
possible  losses.  It  will  be  observed  that  in  the  event  of  loss 
or  claim  under  this  form  of  policy,  the  underwriter  assumes 
liability  for  only  his  proportion  of  the  loss,  based  on  the  relation 
which  the  amount  insured  by  his  policy  bears  to  the  completed 
contract  price  of  the  vessel. 


250  MARINE  INSURANCE 

Fertile  Field  for  Insurance.  In  view  of  the  rai)itl  strides  which 
shii)-l)uiKliiig  is  nuiking  in  this  country,  the  builder's  risk  field 
would  seem  to  offer  underwriters  a  fertile  field  for  development. 
At  i^resent  most  of  the  ship-building  is  on  government  account 
and  is  therefore  not  insunxl  with  i)rivat(!  underw^riters.  However, 
with  a  return  of  peaceful  conditions  this  insurance  will  doubtless 
n^turn  to  the  open  market.  In  fact,  measures  are  now  in 
progress  looking  toward  the  insurance  of  government  vessels 
on  a  special  form  of  policy  similar  to  the  standard  form,  except 
with  respect  to  the  determination  of  the  premium  charge  and 
some  minor  matters  in  regard  to  the  scope  of  protection  afforded. 
The  determination  of  proper  rates  of  premium  for  this  kind  of 
risk  is  a  matter  of  considerable  difficulty,  and  only  by  the  closest 
inspection  of  the  plants  can  satisfactory  results  he  obtained.  The 
fire  hazard  in  non-fireproof  yards  is  an  exceedingly  important 
element  in  the  risk,  while  the  general  upkeep  of  the  yard  and  its 
suitability  as  a  site  for  ship  launching  are  factors  of  no  little 
importance. 


CHAPTER  15 
FREIGHT  INSURANCE 

Freight  Insurance  a  Difficult  Subject. — Freight  the  third 
great  maritime  interest,  is  of  all  the  subjects  of  marine  insurance 
the  most  difficult  to  comprehend.  Why  this  should  be  so,  is 
somewhat  hard  to  understand,  nevertheless  the  fact  remains 
that  in  the  whole  realm  of  marine  insurance  more  difficult  and 
complicated  questions  arise  in  regard  to  freight  than  with  respect 
to  any  other  single  interest.  Perhaps  a  certain  part  of  this 
difficulty  arises  through  a  confusion  of  terms;  the  word,  freight,  in 
this  country  at  least,  having  a  double  meaning.  Freight  as 
usually  thought  of  by  the  lay  mind  refers  to  goods,  to  the  cargo 
of  a  vessel  or  to  the  contents  of  a  railroad  car,  and  accordingly 
the  expression  "freight"  steamer,  or  "freight"  car  is  used,  a 
meaning  of  the  word  that  is  quite  foreign  to  the  usage  in  Great 
Britain,  where  a  freight  car  is  referred  to  as  a  goods  truck. 
Unfortunately  for  the  clear  understanding  of  the  subject  of 
freight  as  used  in  shipping  transactions  and  especially  in  marine 
insurance,  there  is  this  common  and  yet  non-technical  meaning 
of  the  word. 

Meaning  of  Freight  in  Marine  Insurance. — Freight  as  used  in 
marine  insurance  has  an  entirely  different  meaning,  having  refer- 
ence to  the  money  which  is  paid  to  a  vessel  for  the  carriage  of 
goods  or  to  any  common  carrier  for  the  transportation  of  property 
by  rail  or  water.  We  thus  encounter  the  expression  "freight" 
rate  meaning  the  charge  made  by  a  carrier  for  the  transportation 
of  goods  and  merchandise  including  animals.  It  must  be  ob- 
served, however,  that  the  expression  freight  is  not  used  in  connec- 
tion with  the  money  received  for  the  transportation  of  passengers, 
this  being  referred  to  as  passage  money  in  the  case  of  water 
carriage  over  considerable  distances  and  as  "fare"  in  the  case  of 
short  water  trips  or  in  railroad  transportation.  Freight  then,  as 
used  in  connection  with  transportation  insurance,  may  be  con- 
sidered as  an  intangible  interest,  as  a  financial  benefit  derived 

251 


'J'>2  .l/.t/i'/.V/v   IXSUUAXCE 

lliioiinh  the  employment  of  vessels  or  transportation  lines  in  the 
carriage  of  projjerty.  The  fact  that  the  interest  is  an  intangible 
one,  arising  merely  because  of  the  existence  of  a  paper  contract 
wiiich  establishes  a  certain  relation  between  the  owner  or  the 
charterer  of  a  vessel  and  the  owner  of  property  offered  for  trans- 
portalion  by  tliat  vessel,  no  doubt  adds  somewhat  to  the  difficulty 
of  understanding  the  subject.  The  forms  of  contract  differ  so 
witlely,  the  time  of  payment  of  the  freight  money  varies  so 
nuich  and  the  duties  and  obligations  of  the  two  parties  to  the 
contract  are  so  involved,  in  many  agrcenumts,  as  to  cause  situa- 
tions to  arise  which  are  complicated  and  difficult  of  explanation. 
The  insurable  interest  in  freight,  depending  on  the  terins  of  the 
contract  of  carriage  and  the  terms  of  the  contract  of  the  sale  of 
the  goods  themselves,  causes  this  subject  to  be  wrapped  up  in  all 
the  complications  and  mystery  which  surround  an  intangible 
interest. 

Vessels  Built  to  Earn  Freight. — Vessels  are  built  for  the  purpose 
of  earning  freight  and  their  value  lies  solely  in  their  abilit}^  to 
accomplish  this  end.  This  statement  refers  to  merchant  vessels 
built,  owned,  and  operated  by  private  enterprise  and  does  not  of 
course  refer  to  the  vast  amount  of  tonnage  recently  constructed 
and  now  being  built  with  an  inunediate  purpose  which  looked  solely 
to  the  successful  prosecution  of  the  war.  These  vessels,  however, 
if  they  are  sold  to  private  owners  will  be  purchased  at  a  price 
which  the  buyer  will  feel  represents  the  earning  value  of  the 
vessel  as  a  cargo  carrier  for  hire.  The  value  of  a  vessel  is  roughly 
the  sum  total  of  the  freight,  which  can  be  earned  during  its 
normal  life,  say  twenty  years,  less  the  cost  of  earning  that  freight 
and  the  cost  of  unkecp,  plus  the  break-up  value  of  the  vessel  as 
scrap  at  the  end  of  its  earning  period.  This  fact  caused  it  to  be 
argued  that  there  is  no  insurable  interest  in  freight  and  that  the 
insurance  on  the  hull  carries  with  it  the  insurance  of  the  im- 
mediate and  prospective  earnings  of  the  vessel. 

When  is  Freight  Earned? — Under  the  original  form  of  freight 
contract,  the  vessel  is  entitled  to  no  compensation  under  a  freight 
agreement,  unless  and  until  it  has  fully  and  precisely  fulfilled 
the  contract  of  carriage,  notwithstanding  the  fact  that  the  non- 
fulfillment of  the  contract  has  resulted  through  causes  beyond 
the  control  of  the  owner  or  charterer  of  the  ship  or  his  agent,  the 


FREIGHT  INSURANCE  253 

captain  of  the  vessel.  Thus  under  the  common  law  of  England 
were  a  vessel  owner  to  contract  to  carry  a  parcel  of  goods  from 
Liverpool  to  Shanghai  for  a  named  sum  of  money,  and  through 
causes  beyond  the  control  of  the  owner  or  captain,  the  vessel 
were  compelled  to  enter  the  port  of  Hong  Kong  and  there  end  the 
voyage  and  there  discharge  and  make  delivery  of  the  goods,  the 
owner  of  the  goods  would  be  reheved  from  paying  the  freight 
stipulated  in  the  contract  or  any  part  thereof,  because  the  owner 
of  the  vessel,  the  other  party  to  the  contract,  has  not  fulfilled 
the  terms  of  the  agreement.  It  will  be  observed  that  in  such  a 
case  the  owner  of  the  vessel  has  incurred  almost  all  the  expense 
necessary  to  completely  fulfill  his  agreement  and  these  expenses  of 
fuel,  food,  wages,  etc.  must  be  paid  notwithstanding  the  fact  that 
under  the  circumstances  he  will  receive  nothing  in  return  and  will 
in  addition  lose  his  profit,  that  is  the  net  freight.  This  net  freight 
is  the  only  freight  that  can  be  considered  in  making  up  the  value 
of  the  vessel  itself,  and  were  the  theory  that  there  is  no  insurable 
interest  in  freight  put  into  actual  practice  the  owner  would  have 
no  means  of  protecting  himself  against  the  loss  of  expenses  in- 
curred in  the  event  of  the  freight  not  being  earned.  Of  course, 
in  the  case  just  cited  if  the  vessel  could  not  proceed  beyond  Hong 
Kong  the  captain  would  endeavor  to  arrange  for  the  forwarding 
of  the  cargo  by  other  conveyances  to  Shanghai  and  thus  earn 
the  freight.  The  expenses  incurred  in  so  forwarding  the  cargo 
would  result  in  a  loss  to  the  vessel  owner  or  chaiterer  recover- 
able under  a  pohcy  on  freight  provided  the  cause  of  the  vessel's 
entering  Hong  Kong  in  distress  was  a  peril  insured  against. 

Freight  "Pro-rata  Itineris  Peracti." — The  rule  in  most 
European  countries  other  than  Great  Britain  is  less  stringent 
than  that  outlined  above.  Freight  pro-rata  itineris  peracti, 
that  is  an  allowance  of  freight  for  the  part  of  the  contract  per- 
formed, is  granted  to  the  vessel  owner  or  charterer,  if  the  com- 
plete fulfillment  of  the  contract  is  prevented  by  causes  over  which 
he  has  no  control.  In  the  United  States  the  English  practice 
has  been  closely  followed.  Nothing  short  of  exact  compliance 
with  the  terms  of  the  freight  agreement  is  considered  a  fulfill- 
ment of  the  contract  entitling  the  vessel  owner  to  compensation. 
It  does  not  follow,  however,  that  an  express  agreement  may  not 
be  made  by  the  cargo  owner  to  receive  his  cargo  at  a  point  short  of 

18 


•J') 4  .U.I/.7.V/';  INSURANCE 

ilcstinalion  \\\)()]i  i):iyiiu'ii(  to  the  vessel  owner  of  an  agreed 
amount  of  freight  for  the  part  of  the  voyage  ah-eady  completed. 
This  is  often  done  in  order  to  obtain  prompt  possession  of  the 
property  since  the  vessel  owner  has  the  right  to  retain  possession 
of  the  goods  for  a  reasonable  length  of  time,  if  he  considers  that 
he  will  be  able  to  forward  them  to  destination  and  thus  earn  his 
freight.  This  right  of  the  vessel  owner  to  retain  possession  of 
the  goods  is  a  logical  one,  as  otherwise  the  cargo  owner  in  the 
event  of  delay  through  marine  peril  or  otherwise,  could  step  in 
and  demand  possession  of  the  property,  thus  preventing  the 
vessel  owner  from  earning  his  freight.  If  the  cargo  owner  is 
unwilUng  to  await  the  arrival  of  the  vessel  at  destination,  or 
the  forwarding  by  the  vessel  owner  of  the  goods  on  some 
other  conveyance,  he  may  by  payment  of  full  freight  or  by 
payment  of  pro-rata  freight,  if  the  amount  of  this  can  be  de- 
termined amicably,  usually  obtain  immediate  possession  of  the 
property. 

Prepaid  and  Guaranteed  Freight. — Again  it  must  not  be  pre- 
sumed, from  tliis  statement  of  the  basic  rule  in  regard  to  the 
earning  of  freight,  that  it  is  not  possible  for  the  vessel  owner  to 
make  a  freight  contract  by  wliich  he  secm'es  payment  of  the 
freight  whether  or  not  the  voyage  is  fully  performed.  On  the 
contrary,  many  freight  contracts  provide  for  prepaid  freight  or 
guaranteed  freight,  that  is  payment  of  the  freight  even  if  the 
goods  are  not  dehvered  according  to  the  terms  of  the  contract, 
such  non-delivery  resulting  from  causes  beyond  the  control  of  the 
vessel  owner.  If  the  freight  is  merely  prepaid  without  an^'  stipu- 
lation in  the  contract  that  the  prepayment  is  to  be  retained 
whether  the  voyage  is  successfully  completed  or  not,  the  prepaid 
freight  must  be  returned  if  the  voyage  is  not  completed  in  ac- 
cordance with  the  terms  of  the  agreement  of  carriage.  If  the 
freight  is  prepaid  absolutely  or  is  guaranteed,  wdiich  amounts  to 
the  same  thing,  it  will  be  observed  that  the  vessel  owner  has  no 
freight  at  risk  during  the  voyage  as  he  either  has  the  freight  in 
hand  or  has  a  contract  under  which  the  freight  will  be  forthcoming 
whether  or  not  the  voyage  is  completed.  The  money  paid  or  to 
be  paid  in  such  cases  for  the  carriage  of  goods  has  thus  lost  its 
identity  as  freight  and  while  it  may  l)c  insured  by  the  cargo 
owner    under    the    name    of   freight,   it  has  in  reality  become 


FREIGHT  INSURANCE  255 

part  of  the  value  of  the  goods  and  may  rightly,  if  the  cargo 
owner  so  elects,  be  included  as  part  of  such  value,  and  insured 
as  goods. 

Prepaid  Freight  Wrong  in  Principle. — Contracts  calling  for 
the  prepayment  or  the  guaranteeing  of  freight  are  wrong  in 
principle,  and  become  possible  when  a  situation  exists  in  the  ton- 
nage market  where  the  demand  greatly  exceeds  the  supply.  In 
such  event  the  steamship  owner  or  agent  in  a  measure  has  the 
cargo  owner  at  his  mercy  and  can  demand  terms  of  payment, 
which  would  not  be  tolerated  in  a  competitive  market.  The 
owner  of  a  vessel  is  by  the  common  law  obligated  to  deliver  cargo 
which  he  receives  under  a  contract  of  carriage  at  the  destination 
named  in  the  condition  received,  the  acts  of  God  and  of  the  Kings' 
Enemies  alone  excepted.  While  this  basic  law  has  been  greatly 
modified  by  statute,  in  that  vessel  owners  have  been  relieved  of 
many  of  the  obligations  formerly  imposed  upon  them,  the  law 
has  not,  in  the  absence  of  express  agreement,  relieved  owners 
from  the  primary  duty  of  performing  the  contract  of  carriage  to 
the  letter.  While  the  prepayment  of  freight  in  no  wise  relieves 
owners  from  the  duty  of  implicitly  performing  the  contract,  the 
fact  that  the  freight  money  is  in  hand  or  guaranteed  removes  the 
chief  incentive  to  the  diligent  prosecution  of  the  voyage,  and 
makes  the  owner  less  likely  in  the  event  of  disaster  to  use  all 
possible  efforts  to  carry  the  cargo  forward  to  destination.  Plaus- 
ible excuse  will  be  offered  as  to  the  impracticability  of  taking 
measures  to  forward  cargo  to  destination,  which  measures,  if 
the  payment  of  the  freight  were  dependent  thereon,  would  seem 
the  obvious  course  to  pursue. 

Interesting  Underwriting  Problems. — The  insurance  of  freight 
presents  some  very  interesting  underwriting  problems  owing  to 
the  fact  that  certain  hazards  in  connection  with  the  interest  may 
be  at  the  risk  of  one  party  to  the  contract  of  carriage  while  others 
are  at  the  risk  of  the  other  party.  Reference  has  already  been 
made  in  an  earlier  chapter  to  charter  parties  and  bills  of  lading. 
The  relations  established  by  these  two  forms  of  agreement  as 
a  rule  determine  the  conditions  with  which  freight  insurance  has 
to  deal,  and  as  the  forms  of  these  agreements  are  many,  so  the 
conditions  involved  in  freight  insurance  are  many.  Were  it 
possible  in  each  case  of  freight  insurance  to  scrutinize  the  terms 


2r>Ct  MARINE  INSURANCE 

of  (ho  froi}j;lit  agrcomont,  inucli  of  the  difliculty  oxpericnced  in 
tlie  insiirinj^  of  froif^lit  would  l)e  eliminated. 

Charter  Parties. — Under  the  charter  party,  the  owner  of  a 
vessel  hires  it  to  a  ship  operator  or  to  a  merchant  for  a  definite 
period  of  time  or  for  a  specific  voyage,  payment  for  the  use  of 
such  vessel  being  stipulated  in  the  agreement.  The  owner  may 
tiu-n  the  vessel  over  to  the  charterer,  the  latter  agreeing  to  oper- 
ate it,  to  insure  it  and  at  the  end  of  the  specified  voyage  or  time  to 
return  it  to  the  owner  in  the  same  condition  in  which  he  received 
it.  A  fixed  price  per  day  may  be  agreed  upon  for  the  use  of  the 
vessel,  payment  to  l)e  made  monthly.  It  is  usually  stipulated 
that  if  the  vessel  be  lost  or  disabled  so  as  to  be  unfit  for  service, 
the  per  diem  payment  is  to  cease  from  the  time  the  vessel  is  lost 
or  during  the  period  it  is  disabled.  Under  this  state  of  facts  the 
vessel  owner  is  not  at  all  concerned  in  the  success  of  the  charterer 
in  being  able  to  obtain  freight  engagements  for  the  vessel,  except 
in  so  far  as  such  inability  may  result  in  the  financial  embarrass- 
ment of  the  charterer,  but  he  is  greatly  concerned  in  the  continued 
existence  of  the  vessel  in  a  navigable  condition.  This  is  not 
because  loss  or  damage  to  the  hull  will  affect  him,  this  contingency 
by  the  terms  of  the  agreement  being  at  the  risk  of  the  charterer, 
but  because  the  disabling  of  the  vessel  will  cause  the  payment  of 
the  charter  money  to  cease.  The  owner  of  the  vessel,  therefore, 
has  an  insurable  interest  in  the  charter  money  called  for  by  the 
terms  of  the  contract  against  loss  through  the  occurrence  of  the 
perils  which  will  cause  these  payments  to  cease. 

Charter  Money. — The  forms  of  charter  parties  are  various 
calling  for  the  chartering  of  the  vessel  on  any  one  of  a  number  of 
methods  of  operation  and  stipulating  for  the  payment  of  the 
charter  money  in  various  ways.  This  is  the  name  by  which 
freight  is  known  when  the  payment  is  made  for  the  use  of  an  entire 
vessel  or  a  part  thereof  under  a  charter  party  form  of  agreement. 
(Charter  money  may  be  paid  by  the  day,  month  or  year,  by  the 
trip  or  round  voyage,  or  it  may  be  based  on  a  unit  of  measure  as 
so  many  dollars  per  ton  or  per  bale.  In  any  event  if  the  owner 
hires  his  vessel  under  charter  party,  this  agreement  fixes  the 
respective  liabilities  of  the  two  parties  with  regard  to  the  vessel 
itself  and  its  earnings,  the  freight  or  charter  money.  In  many 
cases  the  owner  will  charter  liis  vessel  to  a  merchant  who  has  a 


FREIGHT  INSURANCE  257 

quantity  of  goods  to  ship  sufficient  to  furnish  a  full  cargo  for  the 
ship.  In  such  case  the  sole  duty  of  the  cargo  owner  is  to  furnish 
the  cargo,  the  vessel  owner  attending  to  the  stowage  and  carriage 
of  the  goods  and  in  the  absence  of  special  agreement  to  the  con- 
trary, receiving  his  compensati'on  at  the  stipulated  rate  on  the 
right  delivery  of  the  cargo  at  the  destination  named. 

Bill  of  Lading  Freight. — Where  a  vessel  is  put  on  the  berth  to 
load  general  cargo  for  any  merchant  who  mayoffer  cargo  for  the 
intended  port  of  destination,  the  second  form  of  freight  agree- 
ment, the  bill  of  lading,  comes  into  use.  The  bill  of  lading  is  the 
vessel's  receipt  for  goods  delivered  to  it  to  be  transported  to  the 
destination  named  therein,  in  accordance  with  the  terms  and 
conditions  thereof,  at  the  rate  of  freight  stipulated.  The  sum 
total  of  all  the  bill  of  lading  freight  is  the  total  gross  earnings  of 
the  vessel  for  the  contemplated  trip  and  is  at  the  risk  of  and 
therefore  insurable  by  the  owner,  or  charterer,  as  the  case  may  bo, 
because  under  the  ordinary  form  of  bill  of  lading  the  freight  is  not 
due  from  the  cargo  owners  until  the  goods  are  delivered  at  des- 
tination. The  owner  or  charterer  of  the  vessel  however  has  a 
lien  on  the  goods  and  may  retain  possession  thereof  until  such 
payment  is  made.  'Insurance  placed  on  bill  of  lading  freight  is 
usually  valued  at  freight  list. 

Delivery  of  Cargo  in  Specie. — At  this  point  it  will  be  proper 
to  explain  that  under  common  law  as  amended  by  statute  and 
under  the  ordinary  form  of  bill  of  lading,  while  it  is  required  that 
the  owner  or  charterer  deliver  cargo  at  destination  in  order  to 
earn  freight,  it  is  only  required  that  such  delivery  be  made  in 
specie.  That  is,  the  owner  or  charterer  is  deemed  to  have  ful- 
filled his  agreement,  if  he  delivers  the  same  goods  that  he  re- 
ceived, regardless  of  the  fact  that  they  may  have  been  severely 
damaged  through  causes  beyond  his  control.  If,  however,  the 
goods  are  not  delivered  in  the  form  in  which  they  were  received 
the  owner  or  charterer  is  in  exactly  the  same  position  with  respect 
to  payment  as  if  delivery  had  not  been  made.  Thus  if  cement  is 
shipped,  but  through  the  entrance  of  water  into  the  hold  it 
arrives  as  stone,  delivery  cannot  be  made  in  specie  and  the  cargo 
owner  will  not  be  required  to  pay  the  freight.  It  is  true,  however, 
that  when  goods  are  received  in  a  damaged  state  caused  by  condi- 
tions for  which  the  owner  or  charterer  is  not  liable,  the  consignee 


258  MARINE  INSURANCE     ' 

may  be  c<)m|)(>llc'(l  lo  pay  full  frcitrlil.  Tin)  vessel  has  in  all 
cases  a  lien  on  the  carj^o  for  the  ainouiit  of  freight  thereon. 
This  calls  attention  to  the  fact  that  there  arc  certain  hazards 
in  connection  with  freight  that  are  at  the  risk  of  the  cargo 
owner. 

Collectible  Freight  or  Freight  Contingency. — This  risk  on 
freight  for  which  the  cargo  owner  is  liable  is  insured  under  the 
name  of  collectible  freight  or  freight  contingency.  The  risk  as- 
sumed by  the  underwriter  is  comparatively  small.  If  the  goods 
are  damaged  during  the  course  of  the  voyage,  it  does  not  neces- 
sarily follow  that  there  will  be  a  claim  under  the  contingency 
freight  insurance  as  the  vessel  may  never  arrive  or  on  arrival  the 
damaged  goods  may  have  changed  in  specie,  thus  relieving  the 
cargo  owner  from  any  freight  payment.  If  the  goods  are  landed 
in  specie,  however,  the  freight  is  due.  The  cost  of  the  goods  is 
increased  by  the  amount  of  freight  so  paid.  It  is  on  this  basis 
that  claim  under  such  freight  insurance  is  made.  That  is,  to  the 
insured  value  of  the  goods  is  added  the  insured  value  of  the  freight 
contingency,  and  the  percentage  of  loss  suffered  by  the  goods  as 
determined  by  a  comparison  of  the  sound  and  damaged  values  of 
the  property  is  applied  to  this  combined  insured  value  and  settle- 
ment made  accordingly.  Freight  contingency  or  collectible 
freight  is  usually  insured  in  the  same  pohcy  as  the  goods  them- 
selves, the  rate  charged  on  the  freight  being,  however,  but  a  frac- 
tion, usually  one-third  of  the  rate  on  the  goods  in  view  of  the  few 
hazards  to  which  this  interest  is  exposed.  The  use  of  the  words 
"collecti])le  freight"  in  relation  to  the  cargo  owner  should  not  be 
confused  with  the  same  expression  when  used  to  describe  the 
interest  of  the  vessel  owner  or  charterer  in  bill  of  lading  freight 
payable  at  destination.  Owing  to  the  double  use  of  this  expres- 
sion it  is  preferable  to  refer  to  this  bill  of  lading  freight  as  "freight 
contingency  "  when  considered  from  the  point  of  view  of  the  cargo 
owner. 

Various  Freight  Interests  in  a  Single  Venture. — It  will  thus  be 
seen  that  many  freight  interests  may  be  involved  in  a  single 
venture.  In  the  case  of  a  boat  chartered  on  time  and  put  on  the 
berth  by  the  charterer,  the  owner  will  have  an  insurable  interest 
in  the  charter  money  if  its  payment  is  contingent  on  the  continued 
existence  of  the  vessel;  the  charterer  will  have  an  insurable 


FREIGHT  INSURANCE  259 

interest  in  the  bill  of  lading  freight  for  the  immediate  voyage,  if 
collect,  while  the  cargo  owner  will  have  an  insurable  interest 
in  the  freight  contingency.  If  the  charterer  has  rechartered  to 
another  party  who  in  turn  puts  the  vessel  on  the  berth,  the  original 
charterer  may  have  an  insurable  interest  in  profits  on  charter, 
that  is  the  difference  between  the  amount  he  will  have  to  pay  the 
owner  and  the  amount  to  be  paid  to  him  by  the  party  to  whom  he 
has  rechartered  the  vessel.  These  cases  merely  present  some  of 
the  more  common  and  apparent  freight  interests. 

Freight  a  Contingent  Interest.  Dead  Freight. — In  principle 
the  insurance  of  freight  differs  not  at  all  from  the  insurance  of 
hull  or  cargo.  The  interest  is  intangible  being  based  merely  on  a 
contractual  relation,  but  the  perils  to  which  the  interest  is  exposed 
are  precisely  the  same  perils  to  which  hull  and  cargo  are  exposed. 
The  earning  of  the  freight  in  most  cases  is  dependent  on  the 
continued  existence  of  the  cargo  and  the  successful  prosecution 
of  the  voyage  by  the  vessel.  In  this  connection  mention  may  be 
made  of  what  is  known  as  "dead  freight."  It  may  happen  that 
after  a  merchant  has  engaged  space  in  a  vessel  the  goods  which 
he  intended  to  ship  are  destroyed  or  he  is  for  some  other  reason 
prevented  from  making  the  intended  shipment.  He  may  be 
able  to  substitute  other  goods,  but  if  he  cannot  do  this  and  the 
shipowner  cannot  obtain  other  cargo  to  fill  the  space  in  question, 
the  merchant  may  have  to  pay  for  the  space  for  which  he  con- 
tracted although  the  vessel  sails  with  the  space  unused.  The 
freight  paid  for  unused  space  is  called  "dead  freight."  It 
may  be  that  the  shipowner  can  obtain  cargo  for  the  whole  or 
part  of  the  space  engaged,  but  at  a  lower  rate  than  the  merchant 
was  to  pay,  in  which  event  the  difference  between  the  contract 
price  and  the  freight  received  for  the  substituted  cargo  will  have 
to  be  paid  by  the  merchant.  It  is  the  shipowner's  duty,  of  course, 
to  use  reasonable  diligence  to  fill  dead  cargo  space  and  thus 
reduce  the  amount  to  be  paid  by  the  merchant.  Dead  freight 
is  not  an  insurable  interest,  as  the  loss  of  the  merchant  is  deter- 
mined prior  to  the  inception  of  the  voyage,  while  the  right  of  the 
shipowner  to  the  dead  freight  is  in  no  way  contingent  on  the 
successful  performance  of  the  voyage. 

When  Does  Insurable  Interest  Commence? — The  risks  to 
which  the  interest  of  freight  are  exposed  being  the  ordinary 


2(;()  MARINE  IXSCh'AXCE 

iiiariiic  perils  eovcrod  by  a  marine  insurance  policy,  the  principal 
cliiHcully  is  to  precisely  define  the  insurable  interest  and  the 
particular  contingencies  which  arc  at  the  risk  of  the  person 
desiring  llie  insurance  as  shown  by  the  contract  of  affreightment. 
To  have  an  insurable  interest  in  freight  there  must  be  a  definite 
contract  of  emi)loymcnt  for  immediate  or  future  execution.  In 
the  ordinary  case  of  shi))owners'  fi'eight,  the  j)ayment  of  which 
is  contingent  on  the  successful  execution  of  the  freight  agreement, 
the  insurable  interest  commences  when  the  ship  is  ready  to 
receive  the  cargo  or  sails  in  ballast  for  the  loading  port.  Thus 
if  a  vessel  under  contract  to  carry  a  cargo  of  cement  from  Newport 
New\s  to  a  River  Plate  Port  for  which  it  is  to  receive  say  $20,000, 
on  the  right  delivery  of  the  cargo  at  destination,  sails  from  New 
York  to  Newport  News  in  ballast,  the  owner  has  an  insurable 
interest  to  the  extent  of  §20,000  in  tlie  freight  to  be  earned  on 
the  trip  from  Newport  News  to  River  l^late.  If  disaster  over- 
takes the  vessel  between  New  York  and  Newport  News,  and  the 
vessel  is  lost  or  so  injured  that  the  contemplated  trip  must  be 
abandoned  there  will  be  a  total  loss  of  the  freight.  If  the  cement 
is  loaded  and  the  vessel  proceeds  on  her  journey,  but  through 
perils  insured  against  part  of  the  cargo  is  so  damaged  that  delivery 
of  this  part  cannot  be  made,  then  there  will  be  a  total  loss  of 
part  of  the  freight,  representing  that  portion  of  the  freight  appli- 
cable to  the  damaged  cargo.  If  on  the  other  hand,  owing  to  stress 
of  weather,  a  sacrifice  of  part  of  the  cargo  is  necessary  for  the 
safety  of  the  entire  venture  and  a  portion  of  the  cement  is  jetti- 
soned, thereby  entailing  the  loss  of  the  freight  on  this  portion  of 
the  cargo,  a  general  average  loss  on  freight  will  have  occurred,  and 
all  the  interests  saved  will  contribute  to  the  freight  lost,  while 
the  freight  earned  on  the  saved  cargo  will  bear  its  share  of  the 
contribution. 

Future  Freights. — Future  freights  may  be  insured,  provided 
there  is  a  definite  contract  of  afTreightment.  For  instance,  in 
the  case  cited  in  the  preceding  jjaragraph,  the  vessel  owner  might 
have  a  definite  contract  to  carry  a  full  cargo  of  wool  from  the 
River  Plate  to  Boston,  a  lump  sum  freight  of  S30,000  to  be  paid 
on  right  delivery  of  the  wool  at  Boston,  The  owner  can  insure 
this  freight  on  the  trip  from  New  York  via  Newport  News  to 
River  Plate,  because  his  interest  in  this  return  freight  is  not  a 


FREIGHT  INSURANCE  261 

speculative  interest,  but  a  definite  one  arising  out  of  a  valid 
contract,  the  execution  of  which  is  merely  dependent  on  the 
continued  existence  of  the  vessel.  The  mere  knowledge  or 
expectation  on  the  part  of  the  vessel  owner  that  he  would  obtain  a 
wool  charter  on  arrival  at  the  River  Plate  would  not  give  him 
an  insurable  interest  in  the  freight  which  he  might  earn  if  such 
a  contract  were  made.  If,  however,  while  the  vessel  was  on  the 
way  from  Newport  News  to  the  River  Plate  such  a  contract 
should  be  consummated  for  the  return  trip,  then  the  insurable 
interest  in  the  freight  to  ])c  earned  on  the  return  trip  would  arise 
immediately.  It  is  important  when  insuring  the  freight  to  be 
earned  on  future  trips  that  the  interest  which  is  being  insured 
be  definitely  described. 

Anticipated  Freight. — ^In  the  case  cited  above  where  the  vessel 
sailed  from  Newport  News  without  definite  freight  engagement 
after  arrival  at  the  River  Plate,  but  with  a  reasonable  expectation 
of  obtaining  a  charter,  the  owner  is  not  absolutely  precluded 
from  insuring  his  expectation.  This  is  commonly  done  under 
the  name  of  anticipated  freight,  the  insurance  obtained  in  the 
ordinary  case  being  against  total  and  constructive  total  loss  only. 
Obviously,  there  being  no  definite  insurable  interest  which  can  be 
proved  by  the  production  of  a  contract  of  affreightment,  such 
insm-ance  is  effected  policy  proof  of  interest,  full  interest  admitted, 
the  policy  being  an  honor  document,  payable  by  the  underwriter 
on  the  production  of  proof  of  the  loss  of  the  vessel.  It  is  evident 
that  such  insurance  is  open  to  gross  abuses  and  may.  in  fact,  be 
used  as  a  cloak  for  a  mere  gamble.  For  this  reason,  as  already 
indicated  in  the  discussion  of  hull  insurance,  many  hull  policies 
contain  a  warranty  that  the  amount  placed  on  P. P. I. F.I. A. 
form  shall  be  limited  to  a  fixed  percentage  of  the  insured  value 
of  the  vessel. 

On  Board  or  Not  on  Board. — The  expression  freight  "on  board 
or  not  on  board"  is  frequently  found  in  freight  policies.  The 
intent  of  this  clause  is  not  always  clear  as  it  is  evident  that 
freight  being  an  intangible  interest  cannot  be  on  board  the 
vessel.  The  goods  for  the  carriage  of  which  the  freight  is  to  be 
paid  may  or  may  not  be  on  board  in  the  case  of  chartered  freight 
as  was  indicated  in  the  above-described  case  of  the  vessel  sailing 
in  ballast  from  New  York  to  Newport  News  to  load  cement.     It 


2G2  MAin.M':  IXSURANCE 

will  l)c  recalled  (hat  th(!  .skeleton  form  of  policy  leacls  "beginning 
the  adventure  upon  the  said  goods  and  merchandises  from  and 
immediately  following  the  loading  thereof  on  board  the  said 
vessel,  etc.,"  and  while  this  expression  could  not  be  held  to  refer 
to  freight  it  may  be  that  the  expression  "on  board  or  not  on  board" 
is  in.serted  to  avoid  the  possible  implication  that  the  goods  to 
which  the  freight  relates  must  be  on  board  before  the  risk  will 
attach.  This  expression  is  also  u.sed  in  connection  with  insur- 
ances on  freight  for  a  long  round  voyage,  during  which  cargo  will 
1)0  loaded  and  discharged  at  way  i)orts.  The  exact  amount  of 
freight  at  risk  in  such  cases  cannot  be  definitely  determined,  but 
if  the  vessel  owner  wishes  a  valued  policy  covering  this  freight, 
rather  than  insurance  on  P.P.I,  conditions  he  will  place  the  risk 
"on  board  or  not  on  board." 

Chartered  or  as  If  Chartered. — Coupled  with  this  expression 
the  words  "chartered  or  as  if  chartered"  will  be  found  or  these 
latter  words  may  be  used  alone.  The  meaning  of  this  expression 
is  exceedingly  doubtful,  several  decisions  having  been  rendered 
on  these  words  without  shedding  much  light  on  their  meaning. 
It  would  seem  that  the  expression  is  meaningless  where  the  freight 
is  actually  under  charter,  but  in  cases  where  there  is  no  definite 
charter  as  where  the  owner  employs  his  vessel  for  the  carriage 
of  his  own  property,  the  expression  could  take  on  the  meaning 
that  the  freight  while  not  actually  chartered  freight  was  to  be 
insured  under  as  favorable  conditions  as  would  chartered  freight. 
In  the  event  of  the  freight  to  be  earned  on  a  futm-e  voyage  being 
insured  during  the  present  trip,  where  the  contract  for  the  future 
voyage  is  under  agreement  but  has  not  been  reduced  to  a  formal 
charter,  the  combined  expression  "freight  on  board  or  not  on 
board,  chartered  or  as  if  chartered"  would  seem  to  specifically 
provide  for  both  contingencies,  i.e.,  the  fact  that  the  goods  to 
which  the  insured  freight  relates  are  not  yet  on  board  and  that 
the  formal  charter  has  not  yet  been  signed.  The  money,  which 
the  owner  of  a  vessel  saves  by  carrying  his  own  goods  can  be 
insured  as  freight  in  the  same  manner  as  freight  to  be  earned  for 
the  carriage  of  the  property  of  others. 

Termination  of  Risk. — A  policy  of  insurance  on  freight  con- 
tinues to  cover  until  the  contract  of  affreightment  is  completed, 
broken  up  or  abandoned.     It  is  not  necessary,  however,  that  the 


FREIGHT  INSURANCE  263 

protection  afforded  be  concurrent  with  the  freight  contract,  but 
may  cover  only  a  portion  of  the  intended  voyage,  if  such  intention 
is  clearly  indicated  in  the  policy.  Freight  may  also  be  insured  on 
time.  That  is,  a  policy  may  be  written  to  cover  the  freight  at 
risk  on  a  vessel  or  a  fleet  of  vessels  for  a  definite  period  of  time, 
say  one  year.  The  amount  at  risk  at  any  one  time  is  Hmited  to  a 
specific  sum  and  the  freight  is  valued  on  some  definite  basis  such 
as  freight  list  or  amount  of  charter.  Under  such  a  policy  in  the 
event  of  loss  the  amount  recoverable  will  be  the  proportion  of 
the  loss  which  the  amount  insured  bears  to  the  total  amount  of 
the  freight  list  or  of  the  charter.  Under  such  a  pohcy  declara- 
tions of  insm-ance  are  made  as  under  a  floating  cargo  contract, 
premium  being  charged  on  the  amounts  as  reported. 

Amount  Insured. — The  amount  insured  on  freight  should  be 
limited  to  the  gross  amount  at  risk  plus  the  cost  of  the  insurance. 
No  account  is  taken  of  the  cost  of  earning  the  freight  to  be  paid. 
It  may  happen  that  under  a  long  time  charter  the  cost  of  opera- 
tion may  vary  greatly,  so  that  if  freight  payments  are  made 
monthly  one  month  may  show  a  considerable  profit,  whereas  a 
later  month  may  result  in  an  equal  amount  of  loss.  Neverthe- 
less, the  amount  at  risk  should  be  constant,  or  if  insured  for  the 
whole  amount  of  the  charter,  should  be  reduced  proportionately 
month  by  month  as  the  freight  is  earned.  Again,  a  ship  operator 
may  charter  a  vessel  for  a  lump  sum  freight,  but  on  putting  the 
vessel  on  the  berth  be  able  to  obtain  only  a  part  cargo,  or  obtain- 
ing a  full  cargo  have  a  total  freight  list  aggregating  less  than  the 
amount  paid  or  to  be  paid  for  the  charter.  Nevertheless,  the 
bill  of  lading  is  the  only  freight  he  has  at  risk,  the  loss  on 
the  charter  not  in  any  way  being  involved  in  the  successful 
prosecution  of  the  voyage. 

Duty  Insurance.— There  is  another  intangible  subject  of  in- 
surance, which  bears  a  striking  resemblance  to  collectible  freight 
or  freight  contingency  in  the  scope  of  the  risk  to  which  the  interest 
is  exposed.  This  is  the  duty  wliich  is  demanded  by  a  govern- 
ment on  imports.  In  some  countries  there  is  an  export  duty 
which  like  prepaid  or  guaranteed  freight  becomes  part  of  the 
value  of  the  goods  and  may  be  insured  as  such.  Import  duties, 
however,  are  peculiar  to  countries  having  a  protective  tariff  and 
are  collected  only  on  goods  actually  received  into  the  country, 


2{\\  MAh'lXE  IiXSUhWNCE 

wlu'tliiT  sucli  {^ootls  arc  in  sijiiiul  or  (hiinagcMl  coiulilioii  wlion  ro- 
I'cived.  Duty  insurance  is  confined  in  large  measure  to  imports 
into  the  United  States  which  are  su})ject  to  the  tariff.  On  such 
goods  the  government  demands  duty  at  the  rate  provided  in  the 
tariff  and  makes  no  allowance  for  depreciation  due  to  damage, 
unless  a  package  is  delivered  empty  or  is  so  damaged  as  not  to  be 
worth  the  duty  to  be  paid  and  is  abandoned.  In  certain  cases  of 
loss,  refund  of  duty  is  allowed,  but  such  exc^^'ptions  are  rare.  It  will 
be  apparent,  therefore,  that  if  a  case  of  goods  arrives  in  a  damaged 
condition  and  full  duty  is  paid,  the  loss  on  the  goods  is  not  only 
the  depreciation  on  the  invoice  value  but  the  same  depreciation 
on  the  increased  cost  involved  in  the  payment  of  the  duty,  the 
value  of  the  article  being  judged  in  the  American  market  on 
the  basis  of  duty  paid  commodities.  Thus  in  determining  the 
percentage  of  loss  the  gross  sound  and  damaged  values  are  com- 
pared. This  percentage  is  applied  by  the  underwriter  to  the 
insured  value.  If  the  duty  is  insured,  its  insured  value  will  be 
added  to  the  insured  value  of  the  goods  and  the  percentage  of 
loss  applied  to  the  combined  amount.  If  on  the  otlier  hand  the 
duty  is  not  insured,  the  percentage  will  apply  only  to  the  insured 
value  of  the  goods,  the  loss  on  the  duty  paid  being  entirely  at  the 
risk  of  the  assured.  As  in  the  case  of  freight  contingency,  there 
being  no  risk  on  freight  until  the  goods  arrive,  the  rate  of  premium 
charged  on  the  amount  of  duty  is  low;  usually  one-third  of  the 
rate  on  the  goods. 

Premium  is  Due  Even  if  Duty  Not  Paid.— ^Merchants,  who 
are  very  conscientious  in  reporting  shipments  applicable  to  float- 
ing policies,  sometimes  fail  to  report  duties  or  collectible  freight 
on  shipments  insured  under  such  policies  in  cases  where  the  vessel 
is  lost  at  sea,  or  wliere  goods  are  destroyed  before  being  laden  on 
the  vessel,  on  the  theory  that  while  in  such  cases  the  underwriter 
may  be  liable  for  the  loss,  the  question  of  duty  or  collectible 
freight  is  not  involved.  When  it  is  considered,  however,  that  a 
risk  having  once  attached  the  underwriter  is  entitled  to  all  the 
premium  for  all  the  risks  that  would  have  been  covered  if  the  voy- 
age had  been  fully  completed,  the  right  of  the  underwriter  to 
premium  on  duty  and  collectible  freight  in  the  cases  cited  will 
be  apparent.  In  some  cases  underwriters  agree  to  make  adjust- 
ments,  including  the  amount  of  duty  paid,  without  requiring 


FREIGHT  INSURANCE  205 

that  separate  reports  of  duty  be  made,  and  separate  premiums 
paid.  Nevertheless,  in  such  cases  the  assured  pays  premium 
for  the  risk  involved  in  insuring  the  duty  either  by  an  increase 
of  rate  on  the  goods,  or  by  increasing  the  advance  on  the  basic 
value  thus  producing  a  larger  amount  against  which  the  cargo 
rate  is  assessed. 


CHAPTER  10 
WAR  INSURANCE 

War  Insurance  an  Important  Feature. — ^War  insuranco  during 
the  World  Conflict  assumed  a  dominating  ])()siti()n  in  tlic  marine 
insurance  market.  Not  only  was  this  so  from  the  viewpoint  of 
the  volume  of  business  written,  but  also  from  the  interest  which 
was  directed  to  the  field  of  marine  insurance  solely  because  the 
insuring  of  war  perils  on  the  seas  early  became  one  of  the  fore- 
most essentials  in  connection  with  the  successful  pro.secution  of 
the  war.  Up  to  the  outbreak  of  the  World  War  marine  insurance 
meant  little  to  the  general  public,  but  with  the  sinking  of  vessels 
and  the  destruction  of  valuable  cargoes  it  was  realized  that  there 
was  a  profession  organized  and  ready  to  assume  and  distribute  the 
burden  of  these  unusual  losses.  While  the  business  of  marine 
underwriting  was  well  organized  in  the  matter  of  insuring  marine 
hazards,  the  tremendous  values  at  risk  and  the  unusual  hazards 
to  which  maritime  ventures  were  suddenly  exposed,  temporarily 
disorganized  the  insurance  market. 

Little  Knowledge  of  War  Insurance. — That  this  should  have 
been  the  case  is  not  altogether  surprising  in  view  of  the  fact  that 
for  almost  forty  years  commercial  activity  had  pursued  the 
even  tenor  of  its  ways,  slightly  disturbed  now  and  then  by  rumors 
of  wars,  or  even  by  actual  wars  which  were  more  or  less  localized 
and  did  not  involve  world  powers  whose  navies  ranked  high  in 
the  scale  of  size  or  efficiency.  The  Spanish- American  War,  the 
Boer  War,  the  Russo-Japanese  War  and  the  wars  among  the 
Balkan  States  had  in  a  measure  directed  underwriting  thought 
to  the  subject  of  war  insurance,  but  the  real  effect  of  these  wars 
caused  little  more  than  a  ripple  on  the  commercial  sea.  A 
world  war  between  first  class  powers  was  considered  almost 
impossible,  in  view  of  the  progress  which  so-called  civihzation 
had  made  in  the  nineteenth  century.  So  the  generation  of  under- 
writers who  were  experienced  in  war  insurance  passed  on,  and  the 
new  generation  arose  firm  in  the  belief  that  war  on  a  large  scale 

266 


WAR  INSURANCE  267 

was  something  with  which  they  would  not  have  to  deal.  Accord- 
ingly little  thought  was  given  to  the  subject  or  to  the  vast 
changes  modern  invention  would  make  in  naval  warfare  and  the 
consequent  effect  on  war  underwriting. 

A  Great  "War  Thought  to  be  Impossible. — The  idea  that  wars 
of  great  magnitude  were  at  an  end  was  further  strengthened  by 
the  various  efforts  made  during  the  latter  part  of  the  nineteenth 
century  and  in  the  beginning  of  the  twentieth,  to  bring  the  nations 
of  the  world  together  with  the  object  of  estabHshing  universal 
peace.  Conferences  of  the  nations  were  held  at  the  Hague,  but 
the  result  of  these  gatherings  showed  that  all  nations  were  not 
yet  ready  to  submit  their  differences  to  an  International  Court 
of  Arbitration.  Efforts  were  therefore  made  to  establish  inter- 
national rules  of  conduct,  should  war  occur,  which  would  safe- 
guard non-combatants,  protect  peaceful  commerce  on  the  high 
seas  and  in  connection  with  the  destruction  of  belligerent  com- 
merce, at  least  save  life.  Accordingly  there  was  proposed 
"The  Declaration  of  London,"  a  code  of  laws  for  the  conduct  of 
naval  warfare  on  the  high  seas,  embodying  the  well-established 
principles  of  international  law  and  amplifying  such  principles 
to  bring  them  more  into  conformity  with  the  advanced  ideas  of 
humanity  which  the  Hague  Conferences  had  demonstrated  were 
the  desires  of  the  larger  part  of  the  nations  of  the  World.  At  the 
outbreak  of  the  World  War  this  Declaration  had  been  ratified 
by  most  of  the  powerful  nations  of  the  World,  and  had  been  ac- 
cepted in  principle  by  some  who  had  not  actually  ratified  it. 
Of  course,  like  all  international  agreements  unanimous  consent 
was  necessary,  the  will  of  the  majority  having  no  power  over  that 
of  the  minority.  The  Declaration  of  London  was  not,  therefore, 
an  enforceable  international  code.  However,  it  laid  down 
principles  so  well  established  by  international  laws  and  usage,  and 
doctrines  so  in  accord  with  the  dictates  of  humanity  that  it  was 
fair  to  assume  that  the  spirit  of  the  code  would  be  observed  in 
the  conduct  of  maritime  warfare. 

Perils  Judged  by  International  Law. — Having  had  little 
practical  experience  in  the  underwriting  of  war  insurance,  it  was 
reasonable  for  underwriters  to  assume  that  the  hazards  against 
which  they  would  be  called  upon  to  furnish  protection,  were 
those   which    would   occur   in    connection    with   naval   warfare 


2(58  M  .1  /.7  .V  /■;  /  .V.S- 1 '  li  \  X(  'E 

conducted  in  accordance  with  this  aixl  other  codes  sucli  as  the 
l^(>clarat ioii  of  Paris  and  in  accortUmce  with  the  i)roj)osals 
oITcicmI  foi-  acceptance  at  th(>  Hague  Conferences.  In  {general, 
therefore,  it  was  assumed  that  the  conchict  of  war  on  the  high 
sous  woukl  follow  inteinational  law,  and  that  underwriting  based 
on  such  law  would  produci;  results  satisfactory  to  both  assured 
and  underwriter.  How  fai'  mai  il  inie  warfare  depai  fed  from  these 
international  rules  is  now  well  known,  but  underwriters  early 
in  the  war  fell  into  the  connnon  error  that  the  war  was  being 
fought  between  civilized  nations.  Changes  were  made  so  quickly 
in  the  rules  of  warfare  that  underwriters  weie  kept  on  the  alert 
in  order  to  make  the  conditions  of  their  policies  conform  to  the 
rapidly  changing  conditions  of  naval  warfare. 

Principles  of  War  and  Marine  Insurance  the  Same. — The 
principles  ajjplying  to  war  insurance  arc  the  same  as  those 
applying  to  insurance  against  ordinary  marine  perils,  the  dif- 
ference being  in  the  peril  causing  the  loss  and  not  in  the  funda- 
mental principles  governing  the  protection  afforded  against  such 
loss.  As  previously  pointed  out  marine  policies  in  their  original 
form  cover  against  war  perils,  but  by  the  insertion  of  the  War 
Clause  or  the  "Free  of  Capture  and  Seizure"  Clause  as  it  is 
commonly  known,  these  perils  are  excluded  from  the  protection 
of  the  policy.     In  its  ordinary  form  this  clause  reads: 

"  Warranted  free  of  capture,  seizure,  arrest,  restraint,  or  detainment, 
and  the  consequences  thereof  or  of  any  attenapt  thereat  (piracy  ex- 
cepted), and  also  from  all  consequences  of  hostilities  or  warlike  opera- 
tions wliether  before  or  after  declaration  of  war." 

If  it  be  desired  to  cover  the  risks  of  war  the  above  clause  is  deleted, 
or  a  new  one  is  endorsed  on  the  policy  waiving  the  above  clause. 
If  it  be  desired  to  insure  only  war  perils  and  not  marine  risks, 
a  clause  is  endorsed  on  the  policy  stating  that  the  policy  covers 
only  the  risks  excluded  by  the  Free  of  Capture  and  Seizure  Clause 
in  the  marine  policy. 
.  Perils  Insured  Against. — This  is  of  course  but  one  method  of 
amending  the  ordinary-  policy  to  include  war  risks  or  to  cover 
war  risks  only.  Sometimes  a  special  clause  is  endorsed  reciting 
in  detail  the  perils  of  war  assumed  by  the  underwriter.  This 
clause  usually  reads: 


WAR  INSURANCE  209 

"It  is  agreed  that  this  insurance  includes  (or,  covers  only,  as  the  case 
may  be)  the  risk  of  capture,  seizure  or  destruction  or  damage  by  men- 
of-war,  by  letters  of  mart,  by  takings  at  sea,  arrests,  restraints,  detain- 
ments and  acts  of  kings,  princes  and  people  authorized  by  and  in 
prosecution  of  hostilities  between  belligerent  nations;  but  excluding 
claims  for  delay,  deterioration  and  for  loss  of  market  and  warranted 
not  to  abandon  in  case  of  capture,  seizure  or  detention,  until  after  con- 
demnation of  the  property  insured,  nor  until  sixty  days  after  notice  of 
said  condemnation  is  given  to  this  Company.  Also  warranted  not  to 
abandon  in  case  of  blockade  and  free  from  any  claim  for  loss  or  expense 
in  consequence  thereof  or  of  any  attempt  to  evade  blockade;  but  in  the 
event  of  blockade  to  be  at  liberty  to  proceed  to  an  open  port  and  there 
end  the  voyage.      Foregoing  does  not  cover  any  war  risk  on  shore." 

The  Declaration  of  London. — With  this  clause  in  mind  it  will 
be  interesting  to  turn  to  the  Declaration  of  London  and  note  a  few 
features  of  international  law  relating  to  the  conduct  of  war  on  the 
high  seas.  As  this  Declaration  had  for  its  primary  purpose 
the  definition  of  that  portion  of  International  Law  relating  to 
cases  which  would  come  before  a  prize  court  for  adjudication,  it 
will  give  a  fairly  lucid  idea  of  the  principles  upon  which  under- 
writers felt  they  could  rely  in  determining  the  hazards  assumed 
when  covering  the  risks  of  war. 

Blockade  in  Time  of  War. — The  first  subject  treated  in  the 
Declaration  is  "Blockade  in  Time  of  War."  Immediately  on 
the  opening  of  hostilities  in  the  recent  war,  the  Allied  nations 
endeavored  to  enforce  a  blockade  against  the  Teutonic  Powers. 
Under  the  earlier  Declaration  of  Paris  certain  rules  were  laid 
down  for  the  conduct  of  a  blockade  and  these  rules  were  in- 
corporated in  the  new  Declaration  of  London.  Accordingly 
it  was  held  necessary  that  a  blockade  in  order  to  be  binding 
must  be  effective,  that  is,  it  must  be  sufficiently  maintained 
to  reall}^  prevent  access  to  the  enemy  coastline.  The  mere 
temporary  raising  of  the  blockade  because  of  stress  of  weather 
would  not  invalidate  it,  and  unless  applied  impartially  to  the 
ships  of  all  neutral  nations  the  blockade  would  not  be  valid. 
The  mere  establishment  of  the  blockade,  however,  would  not 
make  it  effective,  unless  it  were  properly  proclaimed  to  the 
world,  specifying  when  the  blockade  would  begin,  its  geographical 
limits  and  the  period  during  which  neutral  vessels  caught  within 

19 


270  MARINE  INSURANCE 

(he  limits  of  Iho  blockade  iiii^lit  coine  out,.  WIicIIkm'  or  iiol  a 
lu'utial  v('ss(>l  iiKiy  be  capturcil  for  brcacli  of  blockade  depends 
on  iier  kiio\vl(Mlge,  actual  or  presumptive  of  the  blockade,  but 
it  will  be  assumed  that  such  knowledge  was  had  if  tlie  vessel 
h^ft  a  neutral  port  subscnjuent  to  the  notification  of  the  blockade 
having  been  riH'eived  Ijy  the  Power  to  which  such  port  belongs. 
It  is  further  ruled  that  the  blockading  forces  must  not  bar  access 
to  neut  ral  ports  or  coasts.  Regardless  of  the  (juestion  of  ultimate 
destination  of  a  vessel  or  of  her  cargo,  it  is  laid  down  that  she 
cannot  be  captured  for  breach  of  blockade,  if  at  the  moment, 
she  is  on  her  way  to  a  non-blockaded  port.  Under  the  Declara- 
tion a  vessel  found  guilty  of  breach  of  blockade  is  liable  to  con- 
demnation. The  cargo  is  also  condemned  unless  it  is  proved 
that,  at  the  time  the  goods  were  shipped,  the  shipper  neither  knew 
nor  could  have  known  of  the  intention  to  break  the  blockade. 

Contraband  of  War. — The  second  chapter  of  the  Declaration  of 
London  refers  to  the  subject  of  Contraband  of  War.  The  word 
contraband  is  derived  from  the  original  warnings  served  by 
belligerents  on  neutrals  in  early  wars  to  the  effect  that  certain 
trades  were  contrary  to  theii-  ban  or  edict.  Under  the  heading 
of  contraband  in  the  Declaration  there  are  given  three  lists  of 
articles,  the  first  of  which  can,  Avithout  notice,  be  treated  as 
absolute  contraband.  These  articles  are  such  as  are  directly 
used  in  the  offensive  or  defensive  operations  of  warfare.  It  is 
also  provided  that  other  articles  exclusively  used  for  war  may  be 
added  to  the  list  of  absolute  contraband  by  a  declaration  which 
must  be  proclaimed  to  all  nations.  The  second  list  is  composed 
of  articles  which,  while  capable  of  being  used  in  war,  are  also 
useful  for  the  purposes  of  peace.  These,  without  notice,  may  be 
treated  as  contraband  under  the  name  of  conditional  contraband. 
As  in  the  case  of  absolute  contraband,  articles  may  be  added  to 
the  list  of  conditional  contraband  if  they  are  of  the  same  character 
as  the  enumerated  articles,  upon  due  notice  being  given  to  other 
nations.  It  is  provided  in  the  third  list  that  the  articles  therein 
enumerated  may  not  be  declared  contraband  because  these 
articles  are  not  presumed  to  be  useful  in  war.  In  view  of  the 
devices  of  warfare  developed  in  the  recent  conflict,  in  the  line  of 
explosives,  anununition  and  offensive  weapons,  some  of  the 
articles  included  in  this  latter  list  such  as  raw  cotton,  used  in  the 


WAR  INSURANCE  271 

manufacture  of  gun  cotton,  silk  used  in  airplane  manufacture, 
rubber  in  the  manufacture  of  shells  and  in  the  equipment  of 
automobiles,  present  an  anomalous  situation. 

Absolute  Contraband. — Absolute  contraband  is  liable  to 
capture  if  it  can  be  shown  that  it  is  destined  to  territory  belonging 
to  or  occupied  by  the  enemy  or  the  armed  forces  of  the  enemy,  it 
being  immaterial  whether  the  carriage  of  such  goods  is  direct  or 
necessitates  transshipment  by  land  or  water.  The  method  of 
proof  of  such  destination  is  carefully  set  forth  in  the  Declaration. 
The  articles  contained  in  the  list  of  conditional  contraband  are 
liable  to  capture  only  if  it  can  be  shown  that  they  are  destined  for 
the  use  of  the  armed  forces  or  of  a  governmental  department  of  an 
enemy  state  and  provision  is  made  for  determining  whether  or  not 
such  goods  are  so  destined.  Conditional  contraband  is  not  liable 
to  capture  unless  it  is  on  board  a  vessel  bound  for  territory 
belonging  to  or  occupied  by  the  enemy  or  for  the  armed  forces  of 
the  enemy  and  is  not  to  be  discharged  at  an  intervening  neutral 
port. 

Carriage  of  Contraband  Cause  for  Condemnation. — A  vessel 
carrying  absolute  or  conditional  contraband  may  be  captured  on 
the  high  seas  and  will  be  condemned  if  the  contraband  reckoned 
either  by  value,  weight,  volume  or  freight,  forms  more  than  one- 
half  the  cargo.  The  contraband  itself  is  liable  to  condemnation 
and  other  goods  belonging  to  the  owner  of  the  contraband  and  on 
board  the  same  vessel  are  also  liable  to  condemnation.  In  case 
a  vessel  is  encountered  on  the  high  seas  while  unaware  of  the 
outbreak  of  hostilities  or  of  the  declaration  of  contraband  which 
applies  to  her  cargo,  the  contraband  cannot  be  condemned  except 
on  the  payment  of  compensation.  The  same  rule  applies  if 
the  master,  knowing  of  the  outbreak  of  hostilities  or  of  the 
declaration  of  contraband,  has  had  no  opportunity  of  discharging 
the  contraband.  Where  a  vessel  is  stopped  and  contraband  found 
but  not  in  sufficient  proportion  to  condemn  the  ship,  it  is  held 
that  she  shall  be  at  liberty  to  proceed  if  the  master  is  will- 
ing to  hand  over  the  contraband  to  the  belhgerent  ship.  The 
captor  is  at  liberty  to  destroy  contraband  received  under  these 
conditions. 

Unneutral  Service. — The  third  chapter  of  the  Declaration 
refers   to  unneutral  service,  it  being  declared  that  a  vessel  is 


27'J  MARINE  INSURANCE 

yubjoct  to  condemnation,  first,  if  slu;  is  on  a  voyage  iindcMfakon 
with  the  special  purpose  of  transporting  individuals  who  are 
inoinbers  of  the  armed  forces  of  tiie  enemy,  or  for  the  purj^oso  of 
transmitting  intolhgcnce  to  the  enemy;  and  second,  if  knowingly, 
the  vessel  transports  a  military  detachment  of  the  enemy  or 
individuals  who  in  the  course  of  the  voyage  directly  assist  the 
operations  of  the  enemy.  If  the  vessel  is  so  used,  cargo  belong- 
ing to  the  owner  of  the  vessel  is  also  liable  to  condemnation. 
Furthermore  a  neutral  vessel  will  be  condemned  and  will,  in  a 
general  way,  receive  the  same  treatment  as  an  enemy  merchant- 
man, if  she  take  part  directly  in  hostilities,  or  is  under  the  orders 
or  control  of  an  agent  of  the  enemy  government,  or  is  exclusively 
in  its  employ,  or  is  engaged  exclusively  in  the  transport  of  enemy 
troops,  or  in  the  transmission  of  intelligence  in  the  interest  of  the 
enemy. 

Destruction  of  Neutral  Prizes. — Chapter  four  of  the  Declara- 
tion relates  to  the  destruction  of  neutral  prizes.  It  is  held  that  a 
neutral  vessel  which  has  been  captured  maj'  not  be  destroyed  by 
the  captor,  but  must  be  taken  into  port  for  the  determination  of 
all  questions  concerning  the  validity  of  the  capture.  An  excep- 
tion, however,  is  made  in  cases  where  the  belligerent  warship 
whicli  has  made  capture  of  a  vessel  subject  to  condemnation 
would  endanger  herself  or  would  involve  in  danger,  the  enter- 
prise in  which  she  was  engaged,  if  she  attempted  to  bring  the 
captured  vessel  into  port.  Nevertheless,  if  conditions  arise 
which  render  excusable  such  destruction  all  persons  on  board 
the  captured  vessel  must  be  placed  in  safety,  and  the  ship's 
papers  preserved  in  order  that  the  validity  of  the  capture  may 
later  be  determined.  The  circumstances  warranting  the  destruc- 
tion of  a  neutral  prize  before  the  validity  of  the  capture  is  deter- 
mined must  be  of  an  exceptional  nature,  otherwise  the  captor 
must  pay  compensation  to  the  interested  parties,  and  the  ques- 
tion whether  or  not  the  capture  was  valid  will  not  be  examined. 
If,  on  the  other  hand,  the  destruction  is  held  to  be  justifial)lc,  but 
the  capture  invalid,  then  the  captor  must  pay  compensation  to 
the  interested  parties,  in  lieu  of  restitution  which  cannot  be 
made.  So  the  owner  of  goods  which  are  not  subject  to  condem- 
nation, but  which  are  destroyed  with  the  vessel,  is  entitled  to 
compensation. 


WAR  INSURANCE  273 

Transfer  of  Vessels.  Convoy.  Right  of  Search. — Other  chap- 
ters follow  relating  to  tlu;  transfer  of  enemy  vessels  to  a  neutral 
flag,  to  the  method  of  determining  the  enemy  character  of  vessel 
and  cargo,  and  to  the  rules  relating  to  ships  saiHng  under  convoy. 
It  is  further  provided  that  forcible  resistance  to  the  legithnate 
exercise  of  the  right  of  stoppage,  search  and  capture,  involves  in 
all  cases  the  condemnation  of  the  vessel.  The  cargo  is  treated 
as  cargo  on  an  enemy  vessel  and  goods  owned  by  the  master  or 
owner  are  treated  as  enemy  goods.  If  the  capture  of  vessel  or 
goods  is  not  upheld  by  the  prize  court,  or  the  prize  is  released 
without  judgment  being  given,  the  parties  interested  have  the 
right  to  compensation,  unless  the  capture  itself  was  justifiable. 

International  Law  Not  Observed. — The  above  outlined  prin- 
ciples, in  general,  were  those  by  which  underwriters  felt  that  they 
could  be  governed  in  the  issuance  of  insurance  against  war  perils. 
It  was,  however,  early  perceived  that  the  rules  observed  in  earlier 
wars  and  the  rules  which  had  been  proposed  for  the  conduct  of 
future  wars  would  not  be  adhered  to  in  this  conflict,  which 
quicldy  became  worldwide  and  involved  warfare  with  nations 
who  had  no  respect  for  solemn  treaty  obligations  and  who  had  no 
reverence  for  International  Law.  Accordingly,  the  Alhed  nations, 
while  striving  to  adhere  to  the  principles  of  the  Declaration  of 
London  and  of  international  law  in  general,  were  gradually 
forced  to  give  a  broad  interpretation  to  those  principles,  and 
in  many  cases  to  abrogate  them.  That  such  action  did  at 
times  do  violence  to  the  rights  of  neutral  nations,  cannot  be 
doubted,  but  that  such  action  was  justified  considering  the  issues 
involved  in  the  conflict  is  now  generally  admitted. 

Doctrine  of  Ultimate  Destination.  Preemption. — Thus  under- 
writers soon  discovered  that  the  blockade  which  was  being  en- 
forced included  neutral  coasts  and  because  of  the  long  coastline 
involved,  could  not  really  be  effective.  The  doctrine  of  ultimate 
destination  was  revived  and  extended,  when  it  was  proved  beyond 
doubt  that  the  ports  of  certain  neutral  countries  were  being  used 
merely  as  transhipment  points  on  the  route  to  the  enemy. 
Furthermore,  it  was  found  that  owing  to  the  secret  methods  used 
by  the  enemy  to  bring  forward  contraband,  the  search  of  vessels 
at  sea  was  impracticable.  This  resulted  finally  in  all  vessels 
destined  for  neutral  ports  of  countries  adjacent  or  contiguous 


274  MARINE  INSURANCE 

to  enemy  territory  being  taken  into  Allied  ports  and  there 
searciied.  This  involved  serious  losses  even  when  it  was  found 
that  no  contraband  was  on  board.  Furthermore  captured 
vessels  were  exposed  to  the  dangers  of  navigation  in  belligerent 
waters  protected  l)y  mine  fields  and  other  war  devices.  That 
the  reason  for  making  these  captures  was  a  justifiable  one  was 
amply  demonstrated  by  the  fact  that  manifests  were  found  to  be 
improperly  drawn  describing  packages  as  containing  lawful 
connnodities  which  in  reality  contained  absolute  contraband  of 
war.  Furthermore,  the  Allied  governments  exercised  the  right 
of  preemption;  that  is,  articles  which  were  free  from  capture 
under  international  law,  but  which  it  was  clear  would  give  aid  or 
comfort  to  the  enemy,  were  taken  by  the  AlUed  governments  and 
what  they  deemed  just  compensation  therefor  was  made  to  the 
owners.  The  lists  of  contraband  articles  changed  so  rapidly 
that  it  was  almost  impossible  for  underwriters  to  follow  them. 

Unforeseen  Perils. — On  the  other  hand  the  Teutonic  Allies 
having  no  ports  of  their  own  into  which  they  could  bring  prizes 
for  adjudication,  sank  neutral  vessels  on  the  high  seas  in  absolute 
violation  of  the  rights  of  neutral  nations.  While  the  Allied 
nations  endeavored  to  ease  the  burden  of  their  search  and  block- 
ade by  making  examination  of  vessels  at  the  port  of  shipment  and 
by  the  granting  of  licenses  for  the  forwarding  of  goods,  and  by 
the  approval  of  shipments  consigned  in  certain  ways  as  to  the 
Netherlands  Overseas  Trust,  the  Teutonic  Alhes  carried  on  their 
illegal  seizures  and  sinkings  with  increasing  disrespect  for  the 
rights  of  neutrals  and  with  disregard  for  the  rights  of  enemy  non- 
belligerents  and  neutral  citizens  respecting  safety  of  life  and  limb, 
provided  for  under  international  law.  Finally  with  the  issuance 
of  a  decree  establishing  a  so-called  "barred  zone,"  and  the  un- 
restricted destruction  of  vessels  in  the  submarine  campaign 
instituted  by  the  German  Government,  underwriters  found  them- 
selves confronted  with  a  situation  not  hitherto  approached  in 
any  previous  war. 

Neutrality  Warranties. — In  order  to  obviate  some  of  the  diffi- 
culties which  were  encountered  in  the  insurance  of  war  perils, 
clauses  were  devised  from  time  to  time  varying  the  protection 
afforded.  Neutrality  clauses  in  various  forms  were  drawn  up, 
which  warranted  that  during  the  term  of  the  insurance  the  prop- 


WAR  INSURANCE  275 

erty  insured  was  warranted  consigned  to  American  or  other 
neutral  citizens,  firms,  or  corporations,  and  that  the  names  antl 
addresses  of  such  consignees  would  be  stated  in  the  bill  of  lading. 
The  property  was  also  warranted  for  consumption  in  some  speci- 
fied neutral  country.  This  warranty  served  to  protect  the 
underwriter  from  claim  if  deception  was  being  practised  in 
regard  to  the  neutrality  of  the  shipment,  the  breach  of  the  war- 
ranty voiding  the  insurance. 

"Free  of  British  Capture"  Clause. — A  clause  further  restricting 
the  liability  of  underwriters  in  connection  with  the  right  of  search 
and  capture  exercised  by  the  Allied  Governments  was,  early  in 
the  war,  inserted  in  many  policies  covering  shipments  to  neutral 
countries.  This  warranty  came  to  be  the  most  used  one  in 
connection  with  war  insurance  and  in  its  common  form,  reads: 
"Warranted  free  from  any  claim  arising  from  capture,  seizure, 
arrest,  restraints,  preemption  or  detainments  by  the  British 
Government  or  their  Alhes. "  After  the  entrance  of  the  United 
States  into  the  war  it  became  customary  to  add  the  "United 
States  Government"  to  this  clause.  Other  forms  amplifying 
the  meaning  of  this  clause,  but  having  the  same  general  purpose 
were  used  in  connection  with  war  insurance. 

Trading  with  the  Enemy. — Early  in  the  war  the  Allies  dis- 
covered that  citizens  of  neutral  countries,  in  violation  of  the 
principles  of  neutrality,  were  giving  aid  and  comfort  to  the 
enemy  in  many  ways.  This  led  to  the  promulgation  of  legisla- 
tion generally  known  as  "Trading  with  the  Enemy"  acts  under 
which  definition  is  made  of  enemies  and  of  what  constitutes 
trading  with  the  enemy.  Upon  the  entrance  of  the  United  States 
into  the  war  similar  legislation  was  passed  by  Congress.  Under 
the  power  of  these  Acts  hsts  were  prepared  containing  the  names 
of  persons,  firms  and  corporations  domiciled  in  neutral  countries 
who  were  classed  as  enemies  and  subject  to  treatment  as  such. 
Vessels  owned  by  such  enemies  were  posted  as  subject  to  treat- 
ment as  enemy  vessels.  These  lists  known  as  "Proscribed"  or 
"Black"  Lists  furnished  information  of  neutral  subjects  or  vessels 
which  would  be  treated  as  enemies  by  the  Allied  Governments. 
It  was  not  possible  to  keep  informed  of  the  many  changes  in  such 
lists  and  accordingly  clauses  were  drawn  providing  that  the 
protection  of  the  policy  did  not  extend  to  any  of  the  firms, 


27()  MA  lilS'E  IN  SURA  X(  'E 

corporations  or  individuals  cominfr  within  tho  han  of  such  acts. 
As  ahTiidy  indicatod,  rhiuscs  of  this  purport  arc  still  ond)odicd 
in  many  jwlicics  whether  marine  or  war  issued  in  this  country. 

Licenses. — Neutral  governments,  in  order  that  they  might  he 
able  to  obtain  supplies  for  their  citizens,  entered  into  arrange- 
ments with  the  Allied  Governments,  by  w^hich  goods  consigned  to 
certain  governmental  corporations  and  w'arranted  for  consump- 
tion in  such  countries,  would  not  be  subject  to  capture,  sei/Aire, 
detention  or  destruction.  The  most  prominent  of  these  corpora- 
tions was  the  Netherlands  Overseas  Trust,  to  whose  consignment 
vast  quantities  of  stores  entered  into  Holland  unmolested.  A 
warranty  of  consignment  to  this  Trust  was  inserted  in  many  war 
insurance  policies,  full  war  protection  being  afforded  in  such 
cases.  In  connection  with  certain  commodities,  licenses  were 
granted  by  the  Allied  Governments  permitting  the  importation 
into  neutral  countries  of  definite  quantities  of  these  commodities 
under  restrictions  set  forth  in  these  licenses.  Full  insurance 
against  war  perils  was  also  granted  on  goods  w-arranted  shipped 
under  such  licenses. 

War  and  Marine  Risks  Separately  Insured. — While  in  many 
cases  marine  policies  were  amended  to  cover  war  risks,  in  a  large 
percentage  of  cases  all  or  a  part  of  the  war  risk  w^as  placed 
separately  from  the  marine  insurance.  This  condition  soon  led 
to  considerable  embarrassment  in  certain  cases  where  it  was 
doubtful  whether  the  loss  which  had  overtaken  the  insured  sub- 
ject was  due  to  a  marine  or  to  a  w-ar  peril.  Where  both  war  and 
marine  insurance  w^ere  covered  in  the  same  policy  or  with  the 
same  underwriters  in  separate  policies,  and  the  loss  was  a  valid 
claim  under  either  the  w^ar  or  the  marine  insurance,  the  only 
doubt  being  as  to  which  policy  was  liable,  the  underwriter  would 
settle  the  claim.  Where,  however,  the  war  and  marine  insurance 
were  placed  with  different  underwriters,  each  would  deny  liability. 
Many  such  cases  were  carried  into  the  courts,  especially  in  con- 
nection with  so-called  missing  vessels,  that  is,  vessels  which  sail 
but  never  arrive  at  their  destination  nor  from  which  any  tidings 
are  received  indicating  the  cause  of  loss.  In  such  cases  there 
had  always  been  a  presumption  that  the  loss  was  due  to  marine 
perils,  but  owing  to  the  changed  conditions  of  warfare,  to  the 
unrestricted  use  of  submdrines,  and  to  the  orders  of  the  German 


WAR  INSURANCE  Til 

Government  to  "sink  without  a  trace,"  this  presumption  in 
large  measure  disappeared  and  individual  losses  were  decided 
on  their  merits.  In  other  cases  where  the  full  facts  as  to  the 
cause  of  loss  were  known,  there  was  doubt  as  to  whether  the 
loss  was  a  marine  or  war  loss,  and  in  some  cases  it  was  even 
doubtful  whether  the  loss  occurring  was  one  covered  by  either  a 
war  or  a  marine  policy. 

Doubtful  Losses. — Such  a  case  was  that  of  the  Str.  Canadia, 
which  in  the  early  months  of  the  war  was  stopped  off  the  Butt 
of  Lewis  by  a  British  cruiser  and  boarded  by  an  Admiralty  officer. 
In  order  to  facilitate  examination  of  cargo,  the  steamer  was 
ordered  to  Kirkwall,  Against  the  advice  of  the  master  of  the 
vessel,  the  Admiralty  officer  ordered  the  vessel  to  proceed  over  a 
dangerous  course  in  the  night,  with  the  result  that  the  vessel 
was  run  ashore  and  wrecked.  The  underwriters  on  the  marine 
policies  claimed  that  this  was  not  a  marine  loss,  the  vessel  being 
already  captured  and  in  charge  of  the  Admiralty.  The  war 
underwriters,  on  the  other  hand,  claimed  that  the  loss  was 
due  to  a  marine  peril,  notwithstanding  the  fact  that  an  Admiralty 
officer  was  on  board.  Eminent  counsel  gave  opinions  pro  and 
con,  some  even  holding  that  the  loss  was  not  one  contemplated 
by  the  coverage  of  either  policy. 

Intermediate  Liabilities.  Explosion  Hazard. — To  obviate  such 
disputes  caused  by  the  placing  of  war  and  marine  insurance  with 
different  sets  of  underwriters,  clauses  were  devised  by  which 
either  the  marine  or  the  war  underwriters  agreed  in  considera- 
tion of  additional  premium  to  assume  liability  for  risks  which 
might  fall  between  the  marine  and  the  war  policies.  Further- 
more, in  connection  with  the  Halifax  explosion  a  grave  question 
arose  as  to  whether  the  resultant  losses  were  due  to  a  marine  or 
a  war  peril  or  whether  explosion  of  the  nature  causing  the  destruc- 
tion in  question  was  covered  by  either  form  of  policy.  Accord- 
ingly marine  policies  were  amended  to  include  the  risk  of  ex- 
plosions not  covered  by  war  policies. 

New  "War  Devices. — Aside  from  the  breaches  or  modifications 
of  international  law,  which  the  belligerents  made  or  introduced 
in  the  late  conflict,  the  war  perils  insuretl  against  differed  little 
from  those  suffered  in  previous  wars.  The  outstanding  difference 
was  the  world-wide  scope  of  the  conflict  and  the  devices  used 


278  MARIXE  INSURANCE 

to  destroy  onomy  coniinorce.  Tlu*  destruction  of  ships  from 
within  and  from  without  wiis  accomphshed  in  ways  and  by 
methods  that  could  hardly  have  been  conceived  prior  to  this 
war.  Bombs  placed  in  the  cargo,  attached  to  clock  devices  set 
to  cause  explosion  and  destruction  on  the  high  seas,  or  to  cause 
fire  at  sea,  and  bombs  attached  to  the  rudders  of  vessels,  which 
by  the  natural  working  of  the  rudder  w(juld  gradually  wind  up 
the  mechanism  which  would  finally  explode  the  bomb,  were  but 
typical  of  the  diabolical  devices  used  in  the  destruction  of  vessels 
on  the  high  seas.  The  estal)lishment  of  mine  areas  covering 
many  square  miles  and  extending  into  international  waters,  with 
the  possibility  that  many  of  the  mines  would  break  loose  and 
become  floating  traps  for  innocent  vessels,  as  well  as  the  removal 
of  necessary  aids  to  navigation,  all  produced  conditions,  perhaps 
not  altogether  new  in  warfare,  but  at  least  unprecedented  because 
of  the  extent  of  such  operations. 

Submarines  and  Commerce  Raiders. — The  two  outstanding 
perils  which  the  underwriter  was  called  upon  to  assume,  and  which 
were  assumed  without  any  restriction  of  liability  by  clause  or 
otherwise,  were  the  destruction  of  vessels  by  submarines  and  by 
commerce  raiders.  The  activities  of  the  submai-ines  have, 
of  course,  compassed  the  bulk  of  the  destroyed  commerce, 
but  the  operation  of  these  sea  wolves  was  in  a  measure  limited 
geographically  by  the  physical  hmitations  of  the  craft  themselves, 
whereas  the  activity  of  commerce  raiders  was  world-wide.  The 
result  of  this  was  that  the  underwritei  could  form  a  fairly  correct 
estimate  of  the  value  of  the  submarine  hazard,  whereas  the  losses 
caused  by  raiders  usually  occurred  after  a  period  of  comparative 
freedom  from  losses,  in  sections  presumed  to  be  free  from  belhg- 
erent  vessels. 

New  and  Unusual  Hazards. — In  addition  to  the  fact  that  the 
operation  of  the  submarines  in  the  destruction  of  neutral  vessels 
was  in  a  great  many  instances  in  direct  violation  of  the  rules  of 
international  law  and  the  dictates  of  humanity,  the  use  of  this 
type  of  man-of-war  produced  new  and  unusual  perils  to  naviga- 
tion. The  submarine  operating  under  water  a  part  of  the  time, 
produced  a  menace  to  navigation  similar  in  some  respects  to  a 
submerged  derelict,  and  not  a  few  serious  casualties  resulted 
through    collisions    with    submerged    submarines.     Not    alone 


WAR  INSURANCE  279 

did  casualties  occur  in  international  waters,  but  in  territorial 
waters.  In  harbors,  vessels  collided  with  submerged  submarines 
and  instances  were  reported  where  a  submarine  attempted  to 
emerge  directly  beneath  a  vessel  causing  serious  damage  to  both 
craft.  The  nature  of  the  casualty,  whether  a  war  or  a  marine 
peril,  in  such  cases  became  a  question  of  dispute  by  underwriters 
with  conflicting  interests. 

Airplanes. — The  perils  of  war  for  which  the  underwriter 
assumed  responsibility  were  not  only  on  the  seas,  and  under  the 
seas,  but  for  the  fiist  time  in  naval  warfare,  above  the  seas.  De- 
struction by  airplane  or  airship  became  one  of  the  war  perils  in- 
cluded under  the  all  embracing  term  "men-of-war."  While  the 
risk  from  this  cause  was  not  a  great  hazard  compared  with  that 
due  to  other  causes,  the  air  raids  made  on  the  allied  countries  were 
not  confined  to  destruction  on  land  but  in  some  cases  involved  the 
destruction  of  ships  in  the  harbors  of  these  countries.  Here 
again  as  in  the  case  of  the  submarine,  the  hazard  was  localized 
by  the  physical  limitations  of  the  war  machine  itself  and  accord- 
ingly a  more  correct  estimate  of  the  peril  involved  could  be  made. 

Government  War  Bureaus. — Perhaps  the  most  interesting 
development  of  the  recent  war,  in  regard  to  the  subject  of  war 
insurance,  was  the  entrance  of  various  governments,  both  bellig- 
erent and  neutral,  into  the  field  of  war  underwriting.  Consider- 
ing the  rapidity  with  which  the  war  hazard  developed  and  the 
tremendous  values  which  were  involved  in  commercial  sea 
ventures,  it  is  not  at  all  surprising  that  the  underwriting  market 
should  have  become  demoralized  at  the  commencement  of  the 
war,  creating  a  situation  of  widely  fluctuating  rates,  and  a  condi- 
tion where  the  large  values  at  risk  on  extra  hazardous  routes 
could  not  be  absorbed  by  the  then  existing  insurance  market. 
Private  underwriting  being  conducted  for  the  primary  purpose  of 
producing  a  fair  return  of  profit  on  invested  capital,  it  could  not 
be  expected  that  those  entrusted  with  this  capital  would  hazard 
its  safety  in  underwriting,  which  appeared  certain  to  result  in 
loss.  The  government  war  insurance  schemes  were  therefore 
welcomed  by  the  underwriting  fraternity  and  their  conduct 
was  entrusted  to  some  of  the  ablest  underwriters  in  the  various 
countries.  Not  designed  for  profit,  but  for  the  protection  of  the 
commerce  of  each  respective  country,  rates  were  of  secondary 


2S()  MMUNK  IXSIUAXCE 

considcM'alioi).  Notwitlislaiidin^  fi'iiii)()rary  lluctualioiis  in  the 
private  market,  the  government  rates  lield  stead}',  being  increased 
or  decreased  onlj'aftei  a  continuous  period  of  heavy  or  hght  losses. 
The  result  was  that  at  times  the  rates  in  the  private  market  would 
fall  below  the  government  market,  in  which  event  business  would 
fall  away  from  the  bureaus.  In  fact,  on  equal  or  nearly  equal 
rates,  merchants  and  shipowners  preferred  the  private  market, 
owing  to  the  more  elastic  conditions  granted,  and  the  absence  of 
the  red  tape  inevitable  in  the  conduct  of  governmental  operations. 
However,  the  large  capacity  of  the  government  bureaus  and  their 
willingness  to  cover  risks  which  could  be  placed  only  with  great 
difBculty  in  the  private  market,  made  the  })ureaus  a  vital  factor 
in  the  commercial  activity  which  continued  despite  the  perilous 
conditions  surrounding  much  of  the  overseas  commerce  of  the 
world. 


CHAPTER  17 
REINSURANCE 

The  Destruction  of  Large  Values. — It  has  frequently  happened 
that  the  World  has  been  shocked  by  some  great  marine  casualty, 
such  as  the  destruction  of  a  giant  ocean  greyhound  involving 
perhaps  the  loss  of  many  hves,  but  in  any  event  quickly  causing 
the  destruction  of  property  valued  at  several  millions  of  dollars. 
Or  it  may  be  that  a  short  paragraph  is  noted  in  the  daily  papers 
announcing  that  the  Str. — ,  loaded  with  20,000  bales  of  cotton 
ran  ashore  on  the  Coast  of  Ireland  in  a  fog,  that  the  crew  were 
saved,  but  that  the  vessel  and  cargo  would  be  a  total  loss.  The 
loss  is  estimated  at  $1,500,000  for  the  vessel  and  $6,000,000  for 
the  cargo.  Gigantic  values,  surely  large  enough  to  cause  em- 
barrassment to  any  but  the  strongest  insurance  company.  The 
destruction  of  one  of  these  great  vessels  where  no  loss  of  life  is 
involved  is  quickly  forgotten  by  the  general  public,  but  after  the 
event  has  become  but  a  memory  to  the  lay  mind,  the  underwriters 
are  called  upon  to  indemnify  the  owners  of  vessel  and  cargo  for 
the  losses  suffered. 

Reinsurance. — It  may  be  and  it  usually  is  the  case  that  the 
insurance  on  the  vessel  itself  is  widely  distributed,  but  it  often 
happens  when  there  is  a  complete  cargo  of  one  commodity  as  in 
the  cotton  case  cited  in  the  preceding  paragraph,  that  the  insur- 
ance on  the  whole  cargo  will  be  placed  with  two  or  three  insur- 
ance companies.  How  can  these  companies  stand  the  strain  of 
a  heavy  loss  of  one  or  two  million  dollars  in  a  single  venture,  with 
the  possibility  but  not  the  probability  considering  the  law  of 
averages,  of  suffering  in  a  single  year  one  or  more  similar  losses? 
As  losses  should  be  paid  out  of  earnings  and  not  out  of  capital 
how  can  such  losses  be  absorbed  without  making  inroads  into 
capital  and  surplus?  The  answer  to  the  query  is  found  in  the 
word  reinsurance  which  makes  possible  the  issuance  of  policies 
for  large  amounts  and  what  is  still  more  important,  makes  cer- 
tain the  payment  of  large  losses,  if  incurred. 

281 


2S2  MARINE  INSURANCE 

The  Distiibution  of  Risks. — When  the  Str.  Titanic  struck  an 
iceberg  and  sank,  carrying  with  it  scores  of  helpless  human 
beings,  and  cargo  comparatively  small  in  quantity  but  relatively 
large  in  value,  the  marine  insurance  world  was  temporarily 
stunned  at  the  magnitude  of  the  disaster,  and  more  so  consider- 
ing that  the  vessel  was  on  her  maiden  voyage  and  that  the 
insurance  on  her  had  not  been  in  force  long  enough  to  add  any 
considerable  sum  to  the  earnings  of  the  underwriters.  But  with- 
in a  few  weeks  the  owners  of  the  vessel  were  reimbursed  for  the 
loss,  and  what  had  seemed  a  terrible  financial  blow  had  after  the 
first  shock  caused  but  a  ripple  on  the  marine  insurance  sea.  Into 
every  corner  of  the  marine  insurance  world,  in  Europe,  America 
and  the  P^ar  East,  either  because  of  direct  insurance  or  through 
reinsurance  the  loss  was  felt  and  contribution  to  the  indemnity 
was  made. 

Growth  of  Reinsurance. — Reinsurance  has  increased  greatly 
in  the  last  quarter  of  a  century,  since  the  dawn  of  the  new  com- 
mercial era  of  big  business.  The  values  at  risk  in  oversea  com- 
merce are  enormous,  and  more  and  more  has  it  come  to  pass  that 
single  enterprises  will  engage  the  full  capacity  of  a  vessel.  But 
large  enterprises  have  become  large  in  part  by  the  elimination 
of  unnecessary  detail,  and  the  managers  of  such  enterprises  have 
been  unwilling  to  accept  protection  in  small  amounts  widely 
distributed  over  the  underwriting  field.  They  have  preferred 
and  demanded  concentration  of  protection  in  a  few  strong 
companies,  leaving  the  distribution  of  the  heavy  risk  to  the 
underwriters.  This  has,  it  is  true,  reUeved  the  property  owner 
of  the  detail  involved  in  a  multiplicity  of  poHcies,  but  has  thrown 
it  in  some  measure  upon  the  underwriter.  However,  by  con- 
tract participating  and  excess  reinsurance  this  detail  is  reduced 
to  a  minimum,  and  the  dividing  and  distributing  of  risks  con- 
tinues until  all  the  recognized  underwriting  capital  in  the  markets 
of  the  world  is  pledged  directly  or  indirectly  for  the  protection 
of  these  jumbo  lines. 

Jumbo  Lines. — Doubtless  this  has  resulted  in  a  degree  of  dis- 
satisfaction among  some  of  the  smaller  underwriters,  who  would 
prefer  to  have  the  prestige  which  large  direct  lines  give,  rather 
than  the  more  certain  income  obtained  from  a  wide  distribution 
of  smaller  lines.     Efforts  have  been  made  on  behalf  of  the  smaller 


REINSURANCE  283 

underwriter  to  cause  a  wider  distribution  of  business  by  limiting 
the  amount  of  reinsurance  which  a  company  can  obtain  to,  say 
fifty  percent  of  the  written  hne.  While  such  legislation  might 
succeed  in  its  purpose  of  causing  a  wider  distribution  of  direct 
underwriting,  it  would  result  in  other  evils  more  baneful  in  their 
effects  than  that  for  which  a  cure  was  sought.  For  instance,  the 
larger  companies  in  order  to  retain  their  prestige  might  be  in- 
duced to  hold  larger  lines  than  prudent  underwriting  practice 
would  warrant,  while  many  of  the  smaller  companies,  not  well 
known,  would  probably  receive  few  direct  lines,  thus  losing  the 
steady  income  which  reinsurance  lines  furnish,  Wliile  it  might 
be  possible  in  relation  to  fire  insurance  to  conduct  business  on 
the  basis  of  a  wide  direct  distribution  of  risk,  just  as  it  would  be 
possible  to  give  a  wide  direct  distribution  of  the  insurance  on 
hulls  in  marine  underwriting,  such  a  method  of  transacting  insur- 
ance would  encounter  insuperable  obstacles  in  the  placing  of 
cargo  insurance. 

Necessity  for  Large  Limits. — This  will  be  evident  when,  for 
example  it  is  considered  that  in  the  importation  of  raw  and 
manufactured  products,  it  often  happens  that  the  first  advice  of 
shipment  that  a  merchant  has  is  a  cable  announcing  that  the 
Str. — has  left  Singapore  with  $1,500,000  worth  of  crude  rubber 
at  his  risk.  Were  it  not  possible  for  the  assured  to  contract 
in  advance  under  an  open  policy  or  policies  for  protection  suffi- 
ciently large  to  take  care  of  a  shipment  of  this  size,  arrangements 
would  be  made  to  have  the  goods  shipped  insured,  that  is  on 
c.i.f.  terms,  the  insurance  being  placed  in  foreign  markets. 
For  the  merchant  in  this  country  to  place  in  advance  contracts 
with  scores  of  underwriters  in  amount  ranging  from  $5,000 
to  $200,000,  the  ordinary  range  of  capacity  of  the  various  com- 
panies, provided  they  were  restrained  by  law  from  reinsuring 
more  than  fifty  percent  of  their  interest,  would  be  impracticable 
if  not  impossible,  because  underwriters  would  not  care  to  en- 
gage their  maximum  capacity,  when  such  a  large  shipment  was 
an  exception  and  the  average  declaration  did  not  exceed  $250,000. 
Under  the  present  system  a  few  underwriters  will  jointly  under- 
take the  insurance  of  large  maximum  lines,  and  by  participating 
and  by  excess  reinsurance  obtain  even, on  smaller  declarations 
a  fair  run  of  business.     On  the  other  hand  when  business  eventu- 


2Sl  .U.t/.'/.VA'  I.\SCl{ANCE 

atcs  (luickly  iiiid  a  larjfc  amount  of  insurance  is  ncccU'd  within  a 
few  days  or  sometimes  a  few  hours,  were  it  not  possible  to  place 
large  lines,  permitting  the  individual  company  to  distribute  the 
risk,  modern  business  would  encounter  a  handicap  which  would 
seriously  interfere  with  the  success  of  commercial  undertak- 
ings where  time  is  the  controlling  factor.  There  is  ordinarily 
enough  business  to  give  every  company  sufficient  direct  hncs  com- 
mensurate with  its  size,  as  even  the  largest  company  will  not 
assume  more  than  a  limited  number  of  open  policy  accounts, 
that  number  being  controlled  largely  by  its  reinsurance  facili- 
ties, while  many  small  accounts  will  be  placed  with  the  smaller 
but  equally  safe  companies.  Safety  cannot  always  be  judged  by 
the  size  of  the  company,  but  rather  by  the  soundness  of  its  under- 
writing methods.  Most  of  the  large  companies  started  on  a  small 
basis  but  by  conservative  methods  have  attained  success. 

Retained  Lines. — Fortunately  legislation  of  the  character  de- 
scribed has  not  been  successful,  although  within  recent  years  a 
bill  of  this  character  passed  the  legislature  of  one  of  the  Middle 
Western  States,  only  to  be  vetoed  by  the  governor.  It  is 
l)robable,  however,  that  from  time  to  time,  similar  legislation  will 
be  proposed,  and  it  is  well  to  be  forearmed  against  a  seem- 
ingly beneficial  form  of  aid  to  small  companies  which  would 
result  adversely  to  all  underwriting  and  put  a  serious  handicap 
on  business  in  general.  In  New  York  State,  the  legislature  has 
recognized  the  pecuhar  conditions  surrounding  the  placing  of 
marine  insurance  and  has  removed  all  restrictions  as  to  the 
amount  of  habiUty  which  a  marine  company  may  assume,  leaving 
the  reduction  of  retained  lines  to  the  individual  judgment  of  each 
company.  It  is  probably  true,  that  in  every  case,  except  where 
through  some  inadvertence  the  procurement  of  reinsurance  has 
been  overlooked,  marine  underwi  iters  wall  carry  as  a  retained 
line  much  less  than  the  prescribed  limit  of  ten  percent  of  the 
capital  and  surplus,  to  which  fire  and  other  forms  of  insurance 
are  limited  ])y  law. 

Purpose  of  Reinsurance. — Reinsurance  then  is  the  method  by 
which  liability  is  distributed  over  the  entire  underwriting  market. 
It  is  a  branch  of  insurance  which  directly  concerns  only  under- 
writers, but  the  insuring  public  is  indirectly  interested,  in  that  by 
virtue  of  the  system  of  inter-reinsurance  underwriters  are  enabled 


REINSURANCE  285 

to  spread  (licir  liability  over  vast  numbers  of  risks,  with  a  moder- 
ate amount  of  liability  in  each  risk,  thus  stabilizing  the  business. 
It  was  not  until  recently  that  the  question  of  reinsurance  became 
a  matter  of  general  interest  to  the  public.  When,  however,  it 
was  revealed  that  through  the  processes  of  reinsurance  our 
enemies  could  readily  obtain  information  in  regard  to  the  move- 
ment of  ocean  steamers,  and  in  the  fire  reinsurance  market, 
information  as  to  the  location  of  manufacturing  plants  in  which 
government  contracts  were  being  executed,  it  came  home  to  the 
public  that  there  was  a  vast  and  intricate  system  of  distributing 
liability  over  the  underwriting  markets,  not  only  of  this  country 
but  of  the  entire  world. 

Reinsurance  Not  Different  in  Principle. — Reinsurance  in  no 
wise  differs  in  principle  from  any  other  form  of  insurance.  The 
contractual  relation  is  one  between  underwriter  and  underwriter 
instead  of  between  merchant  or  shipowner  and  underwriter,  but 
aside  from  this,  the  contract  of  reinsurance  resembles  in  toto 
the  ordinary  mercantile  contract  of  insurance.  An  underwriter 
obtains  an  insurable  interest  in  each  piece  of  property  which  he 
insures  because  he  enters  into  a  relation  in  which  he  is  financially 
interested  in  the  continued  existence  of  such  property.  He  will 
be  damnified  by  its  injury  or  destruction  through  the  necessity 
of  reimbursing  the  owner  for  the  damage  or  loss  incurred.  There 
can,  therefore,  be  no  doubt  that  underwriters  have  an  insurable 
interest  in  property  which  they  insure.  This,  then,  being  the 
case,  there  is  no  difference  in  principle  between  a  contract  of 
insurance  and  a  contract  of  reinsurance.  However,  in  actual 
practice  many  conditions  peculiar  to  reinsurance  appear  and  some 
consideration  of  them  will  aid  in  giving  a  better  understanding  of 
the  subject. 

Special  and  Floating  Reinsurance  Contracts.^ — -As  in  the  case 
of  direct  insurance,  special  contracts  relating  to  a  specific  risk 
may  be  issued,  or  open  or  floating  contracts  of  reinsurance  may 
be  arranged,  limited  as  to  liabilit}',  time  and  geographical  scope. 
Reinsurance  may  follow  the  precise  terms  and  conditions  of  the 
original  insurance  or  the  original  underwriter  may  only  wish  to 
reinsure  or  be  able  to  obtain  reinsurance  against  a  part  of  the 
risks  which  he  directly  assimies.  Thus,  the  original  under- 
writer may  insure  property,  subject  to  average,  but  not  be  able 

20 


28()  MMUM:  IXSdUAXCE 

ti)  liiid  any  otlier  uiulerwritcr  who  is  willing;  to  ix'iiisure  on  any 
but  free  of  average  terms.  Reinsurance  policies  usually  contain 
what  is  commonly  termed  the  reinsurance  clause  which  reads 
somewhat  after  the  following  form,  i.e.: 

"Being  a  reinsurance  subject  to  the  same  clauses  and  conditions  as 

the  original  policy  or  policies  of  the  said Insurance  Company, 

whether  reinsurance  or  otherwise,  and  to  pay  as  may  be  paid  thereon; 
but  subject  to  the /'any  exceptions  made  to  the  original  con- 
ditions, such  as  the  free  of  particular  average  clause,  being  inserted  in 
the  final  blank  space,  or  in  a  separate  clause  and  i-eferred  to  in  this 
blank  space. 

Reinsurer   Bound   by   Acts   of    Reassured. — The    reinsuring 

company,  b}'  this  clause  or  by  one  of  shuilar  import,  agrees  to  be 
bound  by  the  underwriting  judgment  of  the  original  underwriter 
as  evidenced  by  the  policies  issued  by  him,  and  to  which  the 
reinsurance  contract  in  question  relates,  except  in  so  far  as  ex- 
ception to  certain  conditions  may  be  embodied  in  the  reinsurance 
policy.  Furthermore,  the  reinsuring  underwriter  agrees  to  abide 
by  the  adjustment  and  mode  of  settlement  arranged  between  the 
direct  underwriter  and  his  assured.  When  the  amount  of  a  loss 
is  large  as  in  the  cases  cited  in  the  opening  of  this  chapter  ana  the 
reinsurance  is  placed  locally,  the  financing  of  the  payment  of  loss 
is  a  matter  of  considerable  preparation.  For  instance,  suppose 
the  X  Insurance  Company  has  suffered  a  loss  of  $1,500,000. 
Were  it  to  pay  this  entirely  out  of  its  own  funds,  it  might  require 
the  liquidation  of  some  of  its  securities,  perhaps  at  a  sacrifice, 
or  their  hypothecation  as  security  for  a  loan,  as  a  company  seldom 
has  uninvested  a  sum  as  large  as  that  named.  In  actual  practice, 
however,  the  settlement  of  such  a  loss  merely  calls  for  the  outlay 
on  the  part  of  the  original  underwriter  of  an  amount  equal  to  his 
net  retained  line.  Several  days  before  the  claim  is  to  be  settled 
notice  is  sent  to  the  reinsuring  underwriters  that  upon  a  certain  day 
the  loss  is  to  be  paid  and  requesting  that  paj-ments  covering  their 
proportion  of  the  loss  be  made  to  the  original  underwriter  on  or 
before  that  day.  The  underwriter  draws  his  check  for  the  entire 
amount  of  loss,  depositing  to  his  credit  on  the  same  day  the  checks 
of  the  reinsuring  underwriters  for  their  proportion  of  the  payment, 
so  that  at  the  close  of  business  on  the  day  of  payment  the  bank 
account  of  the  original  underwriter  is  depleted  only  to  the  extent 


REINSURANCE  287 

of  his  retained  line.  Of  course,  this  mode  of  settlement  can  be 
availed  of  only  when  the  reinsuring  underwriters  are  located 
in  the  same  city  as  the  original  underwriter  and  are  willing 
thus  to  assist  him.  They  may,  however,  refuse  to  reimburse 
him  until  he  has  made  actual  settlement  of  loss.  Where  re- 
insurance is  placed  in  other  cities  or  in  foreign  markets  it  is 
not  practicable  to  settle  claims  in  this  manner. 

Limitation  of  Liability. — While  it  is  true  that  under  the 
Law  of  New  York  State  where  a  large  proportion  of  the  marine  in- 
surance business  of  the  United  States  is  transacted,  marine 
companies  are  unrestricted  as  to  the  amount  of  Uability  which 
they  may  assume  and  retain,  as  a  matter  of  practice  under- 
writers have  definite  limits  which  it  is  their  custom  to  retain 
on  each  particular  class  of  business.  With  many  contracts 
outstanding  there  is  no  method  by  which  an  underwriter  can 
control  his  liability.  He  does,  to  be  sure,  have  a  limit  of  liability 
under  each  contract  which  he  issues,  but  in  the  actual  processes 
of  shipment,  many  contracts  may  become  operative  in  connection 
with  shipments  by  a  single  vessel,  with  the  result  that  the  under- 
writer may  have  at  risk  by  such  vessel  a  liabiUty  greatly  in  excess 
of  his  normal  retained  Une.  In  order  to  provide  against  this  con- 
tingency underwriters  take  out  with  their  fellow  underwriters  con- 
tracts of  reinsurance,  placed  as  a  general  rule,  either  as  share  rein- 
surance or  as  reinsurance  attaching  on  the  excess  of  a  fixed  amount. 

Share  or  Participating  Reinsurance. — In  the  case  of  share, 
or  participating  reinsurance  as  it  is  sometimes  called,  the  under- 
writer agrees  to  give  to  his  reinsurers,  a  definite  proportion  of 
all  his  business  moving  over  specified  routes  of  ocean  travel  or  a 
definite  share  in  a  certain  line  of  business  moving  over  the 
described  routes  of  trade.  Sometimes  participating  reinsurance 
involves  only  a  single  account  placed  with  the  original  under- 
writers, the  reinsuring  underwriters  automatically  covering  under 
a  prearranged  contract  a  definite  percentage  of  the  insurance 
assumed  by  the  original  underwriter.  It  may  happen,  that 
notwithstanding  the  protection  afforded  by  such  share  insurance, 
there  is  still  the  possibility  of  a  line  remaining  greater  than  the 
normal  line  which  the  underwriter  desires  to  retain.  To  provide 
against  this  contingency  the  underwriter  contracts  for  what  is 
known  as  excess  reinsurance. 


2SS  AfAh'f.M-    IXST'R.WrK 

Excess  Reinsurance. — Under  (his  form  of  coiitrju-t  reinsurance, 
(lie  j!;eograi)hical  aiul  time  limits  are  definitely  set  forth  and  a 
clause  is  inserted  to  the  eiTect  that  such  reinsurance  is  to  attach 
at  and  from  the  first  port  within  the  fj;eographical  limits  specifietl, 
at  which  the  original  underwriter  has  an  excess  under  liis  various 
policies  considered  as  a  whole  legardless  of  whether  such  policies 
cover  direct  lines  received  from  his  assured  or  reinsurance  received 
from  another  underwriter.  This  excess  may  attach  wlien  the 
original  underwriter  has  a  retained  line  of  any  fixed  amount, 
say  $100,000,  by  any  one  steamer  or  at  any  one  place  as  descril>etl 
in  the  contract,  and  will  cover  such  excess  up  to  the  limit  of  the 
excess  policy  on  the  commodities  specified  therein.  It  is  usually 
provided  that  in  determining  the  amount  applicable  to  the  excess 
reinsurance  policy,  the  various  interests  of  hull,  freight  and  cargo, 
including  specie,  profits  and  any  other  interests  are  to  be  taken 
into  account.  The  original  underwriter  keeps  all  of  these  in- 
terests so  long  as  the  retained  line  does  not  exceed  $100,000. 
In  determining  the  retained  line  for  the  purpose  of  excess  re- 
insurance a  further  factor  enters  into  the  calculation.  This  is  the 
question  of  share  reinsurance,  which,  according  to  the  terms  of  the 
ordinary  excess  reinsurance  policj^  is  first  deflucted,  and  whatever 
remains  at  the  risk  of  the  original  underwriter  after  such  de- 
duction is  made  is  his  net  retained  line.  It  may  be  that  the 
reinsurance  contract  is  taken  out  to  cover  only  certain  com- 
modities, such,  for  instance,  as  wool  and  hides  under  a  policy 
covering  from  ports  on  the  River  Plate  to  Atlantic  or  Gulf 
ports  of  the  United  States.  If  the  net  retained  line  in  such  case 
exceeds  $100,000,  then  there  is  reported  under  the  Excess  Re- 
insurance Policy  wool  and  hides  only  until  the  retained  line  of  the 
original  underwriter  is  reduced  to  8100,000  or  the  amount  in- 
sured on  wool  or  hides  is  exhausted  or  the  limit  of  the  excess 
contract  is  reached. 

Effect  of  Determination  of  Excess  Amount. — It  should  be 
observed  that  once  an  excess  has  attached  under  an  excess 
reinsurance  policy,  it  continues  to  attach  throughout  the  continu- 
ance of  the  risk  as  per  original  policy  or  policies,  notwithstanding 
any  discharge,  transhipment  or  division  of  interest  and  any 
claim  is  settled  pro  rata.  In  other  words,  when  an  excess  is  de- 
termined, excess  reinsurance  becomes  precisely  of  the  same  nature 


REINSURANCE  289 

as  share  or  pariicijiatinfi;  reinsurance.  For  example,  in  the  case 
of  the  wool  and  hides  policy  cited,  if  all  the  wool  and  hides  were 
declared  to  the  reinsuring  underwriters,  the  reassurer  would 
assume  the  whole  burden  of  the  risk  on  wool  and  hides,  provided 
the  reinsurance  was  placed  on  original  terms  and  conditions. 
If,  on  the  other  hand,  the  declaration  gave  a  part  of  the  wool 
and  hides  to  the  reinsuring  underwriter,  the  retained  line  of  the 
original  underwriter  consisting  in  whole  or  in  part  of  wool  and 
hides,  the  original  and  reinsuring  underwriters  would  each  be  liable 
for  their  pro  rata  proportion  of  any  loss  incurred  on  these 
commodities  as  in  the  case  of  share  reinsurance.  Excess  re- 
insurance of  the  character  under  discussion  differs  from  share 
reinsurance  only  in  the  method  employed  in  determining  the 
amount  applicable  to  the  reinsurance  contract. 

Division  of  Interest. — Division  of  interest  frequently  occurs 
through  the  transhipment  of  cargo.  A  steamer  loads  at  a  distant 
port  a  large  quantity  of  goods  on  which  an  excess  accrues.  The 
vessel  proceeds  to  a  transhipping  port,  still  within  the  geograph- 
ical limits  of  the  excess  contract,  where  she  discharges  her  cargo, 
which  instead  of  being  reladen  on  a  single  steamer  is  reladen  on 
two  steamers,  on  neither  of  which  the  original  underwriter  has 
an  amount  equal  to  his  retained  line  under  the  excess  policy. 
Notwithstanding  this  division  of  interest,  the  relation  between 
the  original  underwriter  and  his  excess  reassurers  is  not  dis- 
turbed, the  status  of  the  risk  having  been  fixed  at  the  original 
point  at  which  the  excess  attached,  the  insurance  having  assumed 
the  nature  of  share  insurance,  and  the  underwriters,  original 
and  reassurer  continue  through  to  destination  by  the  tranship- 
ping steamers,  each  with  his  pro  rata  share  of  the  cargo  on  the 
original  steamer. 

Complications  at  Transhipping  Points. — However,  a  complica- 
tion may  arise  at  the  transhipping  point,  if  other  cargo  is  laden 
on  the  transhipping  steamers  in  such  quantity  that  the  unused 
portion  of  the  net  retained  Hne  of  the  original  underwriter  is 
exhausted  and  an  excess  amount  results  which  the  reinsuring 
underwriter  can  take  without  exceeding  the  limit  of  the  reinsur- 
ance contract.  Whether  or  not  this  new  cargo  can  be  brought 
into  the  reinsurance  relation  will  depend  upon  the  care  that 
has  been  exercised  in  drawing  up  the  reinsurance  contract.     A 


290  MMnXJ'J  INSURAXCE 

further  coiiii)lication  will  arise  if  cargo,  which  originates  at  ports 
beyond  the  geographical  limits  of  the  reinsurance  policy,  is  also 
loaded  on  the  same  transhipping  steamer  at  the  transhipi)ing  port 
and  is  at  the  risk  of  the  original  underwriter.  It  may  further 
appear  that  a  portion  of  this  cargo  originating  outside  the  limits 
of  the  reinsurance  policy  in  question  already  has  reinsurance 
on  it.  The  possibilities  of  complications  arising  in  connection 
with  the  placing  of  excess  reinsurance  are  endless,  and  no  little 
degree  of  skill  is  required  to  so  word  these  policies  that  the  pro- 
tection desired  will  really  be  afforded  by  the  terms  of  the  contract. 

Prior  Losses  Under  Excess  Policies. — It  is  customary  to  insert 
in  excess  reinsurance  contracts  a  clause  by  which  it  is  agreed  that 
in  the  event  of  any  claim  arising  in  craft  or  on  shore  prior  to 
shipment  or  on  board  the  vessel  before  completion  of  loading,  the 
excess  shall  be  ascertained  by  taking  into  account  the  whole  of 
the  interest  shipped  or  intended  to  be  shipped  by  the  vessel 
declared,  the  loss  to  be  settled  pro  rata.  The  effect  of  this 
clause  is,  that  if  it  can  be  definitely  show^n  that  certain  goods 
which  have  been  damaged  or  destroyed  before  being  laden  on  the 
vessel  in  question,  would,  if  not  destroyed,  have  been  loaded  on 
such  vessel  in  the  ordinary  course  of  ti^ansportation,  and  if  they 
had  been  so  loaded,  theu-  value,  added  to  that  of  the  goods  which 
actually  were  laden,  would  have  produced  an  excess  declarable 
under  the  contract — the  reinsuring  undei'writer  will  be  liable  for 
his  pro  rata  share  of  such  loss.  If  the  loss  occurs  to  goods  on 
board  a  lighter  at,  or  destined  for,  the  steamer  or  to  goods  on  the 
wharf  at  which  the  steamer  is  loading,  it  is  not  a  difficult  matter 
to  determine  whether  or  not  the  lost  or  damaged  goods  would 
have  been  laden  on  board  the  steamer.  But  if  the  loss  occurs 
on  the  railroad  or  on  a  connecting  steamer,  the  problem  of  deter- 
mining whether  or  not  the  goods  would  have  connected  with  the 
steamer  on  which  the  excess  would  have  accrued,  becomes  a 
matter  of  considerable  difficulty,  and  in  cases  where  through 
bills  of  lading  giving  the  name  of  the  connecting  steamer  arc 
not  issued,  the  problem  is  practically  impossible  of  solution. 

Excess  Loss  Reinsurance. — Under  the  form  of  excess  rein- 
surance discussed  up  to  the  present  point,  it  has  been  assumed 
that  the  original  underwriter  wull  know  the  exact  amounts  that 
are  at  his  risk  by  any  named  steamer.     On  many  routes,  however, 


REINSURANCE  201 

such  as  the  coastwise  routes  of  the  United  States,  it  is  a  practical 
impossibility  for  an  underwriter  to  obtain  tracings,  that  is,  infor- 
mation as  to  the  definite  steamer  by  which  goods  are  forwarded, 
insurance  being  declared  merely  by  naming  transportation  lines 
instead  of  steamers.  There  is  also  the  possibility  of  an  under- 
writer unwittingly  having  at  risk  a  liability  greatly  in  excess  of 
his  normal  line,  yet  his  inability  to  obtain  definite  information  as 
to  this  precludes  his  obtaining  excess  reinsurance  of  the  character 
previously  considered  which  has  as  its  basis  the  determination  of 
retained  lines.  True,  the  underwriter  may  divide  his  accounts  by 
placing  share  reinsurance,  thus  reducing  his  liability,  but  this  still 
leaves  the  possibility  of  heavy  liability  being  unwittingly  assumed. 
To  overcome  this  difficulty  another  form  of  excess  reinsurance  is 
obtained  under  which  the  measure  of  UabiHty  is  not  the  amount 
at  risk  but  the  amount  of  loss  incurred. 

Speculative  Reinsurance. — An  underwriter  may  be  willing  to 
face  the  possibility  of  suffering  a  loss  of  $100,000,  but  may  feel 
that  any  loss  greater  than  this  amount  would  be  out  of  all  propor- 
tion to  the  average  amount  of  liability  which  he  purposes  to  carry. 
Accordingly  he  contracts  with  other  underwriters  to  assume 
liability  for  any  loss  occurring  within  certain  geographical  and 
time  limits  in  excess  of  $100,000  up  to  an  amount  which  he 
concludes  would  represent  his  greatest  possible  liability  on  routes 
by  which  he  receives  no  definite  names  of  forwarding  vessels. 
For  such  insurance  a  fixed  annual  premium  is  charged  based  on 
such  estimated  figures  as  the  original  underwriter  may  be  able 
to  furnish.  Such  reinsurance  is,  of  course,  very  speculative, 
the  protection  afforded,  if  the  excess  attachment  point  is  high, 
being  practically  against  total  or  constructive  total  loss  only, 
and  in  the  absence  of  losses,  it  is  impossible  to  determine  whether 
or  not  the  reassurer  has  any  liabiUty  at  risk.  However,  such 
insurance  does,  at  least,  ease  the  mind  of  the  original  underwriter, 
in  that  he  is  reasonably  certain  if  he  has  procured  sufficient  excess 
reinsurance  of  this  character  that  he  cannot  suffer  a  loss  greater 
than  he  is  wilHng  to  bear. 

Shore  Reinsurance. — A  similar  situation  exists  in  connection 
with  the  interior  risk  which  is  involved  in  the  transportation  of 
goods  and  which  is  ordinarily  insured  in  connection  with  the  ocean 
risk.     Shipments   move   over   widely   diverging   routes   to   the 


292  MARINE  INSURANCE 

great  seaboard  ports  resulting  in  the  possibility  of  an  underwriter 
having  excessive  lines  at  the  railroad  terminals  or  on  the  steam- 
ship piers.  A  similar  condition  exists  at  i)orts  of  destination  or 
at  transhippinj^  ports,  where  because  of  the  arrival  of  two  or  more 
vessels  at  one  time,  congestion  may  aiisc  at  these  ports  which  will 
result  in  an  underwriter  unwittinj^iy  havinjj;  heavy  lines  af  risk 
in  a  single  location.  Since  it  is  practically  impossible  to  trace 
the  lines  at  risk  in  such  locations,  underwriters  contract  for 
excess  fire  insurance  based  on  the  amoimt  of  loss  which  may  be 
incurred.  They  will  assume  full  liability  for  all  loss  not  exceeding 
a  fixed  sum,  say  $50,000,  while  the  reinsuring  underwriters  agree 
to  reimburse  the  original  underwriter  for  any  losses  in  excess  of 
this  amount,  but  not  exceeding  a  fixed  limit.  The  possibility 
of  loss  under  these  excess  contracts  is  not  great,  as  they  are  not 
interested  in  minor  losses,  and  the  rate  of  premium  charged  is, 
therefore,  comparatively  low. 

Co-insurance. — It  will  be  noted  that  under  the  ordinary  form 
of  excess  insurance  where  the  liability  is  predicated  on  the 
amount  at  risk,  the  reinsuring  underwriter  becomes  a  co-insurer. 
His  liability  is  measured  by  comparing  the  amount  declared  under 
the  reinsurance  policy  with  the  total  amount  insured  on  such 
goods  by  the  original  underwriters.  However,  under  excess 
reinsurance  based  on  losses  incurred,  there  is  no  question  of  co- 
insurance involved. 

Special  Reinsurance  Risks.  Flat  Reinsurance. — While  the 
consideration  of  reinsurance,  up  to  this  point,  has  involved  the 
discussion  of  open  contracts,  reinsurance  is  constantly  placed 
as  special  risks,  and  the  same  principles  apply  to  this  form  of 
reinsurance,  although  the  complications  involved  are  not  apt  to 
be  as  great  as  those  that  occur  in  the  placing  of  open  reinsurance 
contracts.  Special  reinsurance  is  placed  on  either  the  partici- 
pating or  excess  basis  or  maybe  placed  flat.  That  is,  the  original 
underwriter  may  reinsure  a  definite  amount,  say  $50,000,  on  a 
certain  risk  with  another  underwriter,  such  amount  not  being  sub- 
ject to  change  if  the  retained  line  of  the  original  underwriter  is 
materially  reduced  or  cancelled  in  full.  Ordinarily,  if  the  original 
line  is  never  at  risk,  the  underwriter  with  whom  the  flat  reinsur- 
ance has  been  placed  must  consent  to  its  cancellation.  Sometimes 
flat  reinsurance  is  jilaced  without  right  of  cancellation,  in  which 


REINSURANCE  293 

event  the  original  underwriter  must  pay  the  reinsurance  pre- 
mium notwithstanding  the  fact  that  he  receives  no  original  pre- 
mium and  that  his  reinsuring  underwriter  incurs  no  risk.  There 
is  a  degree  of  justification  for  this  attitude  in  that  the  reinsuring 
underwriter,  by  accepting  this  flat  reinsurance,  may  have  engaged 
his  entire  capacity  by  the  vessel  in  question,  and  as  notices  of 
short  interest  or  cancellation  are  usually  received  by  the  original 
underwriter  after  the  vessel  has  sailed  or  when  it  is  about  to  sail, 
the  reinsuring  underwriter  is  precluded  from  obtaining  new  in- 
surance to  replace  that  which  it  is  sought  to  cancel,  and  thereby 
loses  business  that  otherwise  might  have  been  his.  The  word 
"flat"  as  used  in  connection  w'ith  reinsurance  means  closed  or 
determined,  indicating  that  the  transaction  is  a  completed  one 
and  not  subject  to  change. 

Reinsurance  Pools. — It  quite  frequently  happens  that  after 
a  long  period  of  bitter  competition  between  underwriters,  with 
its  usual  attendant  loss  to  them  all,  they  will  come  together  in  a 
spirit  of  conciliation  and  agree  one  with  the  other  to  share  a 
definite  Une  of  business,  in  order  that  the  rates  may  be  brought 
to  such  a  level  as  to  insure  a  profit  on  the  business  written.  To 
this  end,  what  is  known  as  a  pool  is  formed,  in  which  each  member 
agrees  to  reinsure  with  every  other  member  of  the  agreement  a 
predetermined  proportion  of  all  such  business  which  he  writes, 
definite  rates  of  premium  being  arranged  for  the  exchange  of  such 
reinsurance.  This  has  a  beneficial  result,  not  only  to  the  under- 
writing community,  but  also  to  the  insuring  public.  While 
competition  undoubtedly  produces  lower  rates  and  has  a  salu- 
tary effect,  competition,  if  carried  to  extreme  lengths,  results  in 
impaired  security,  because  the  premium  income  is  insufficient 
to  pay  for  the  losses  incurred  and  capital  and  surplus  are  affected. 
If  underwriting  can  be  put  on  a  sound  basis,  by  which  the  public 
pays  to  the  underwriting  community  a  premium  sufficient  to  meet 
all  t  he  necessary  expenses  of  the  business  and  leave  a  fair  margin 
of  i)rofit  on  the  capital  invested,  a  distinct  benefit  has  been  gained 
both  by  the  insuring  public  and  by  the  underwriters.  This  is 
the  result  of  reinsurance  pools  which  are  properly  conceived  and 
efficiently  conducted. 

Reinsurance  Subject  to  Original  Conditions. — It  must  be 
remembered  that  in  dealing  with  the  original  assured  the  imder- 


294  MMUSK  INSURANCE 

writer  is  dcaliiiji;  with  a  sjxH'i-lic  risiv.  When  lie  in  turn  reinsures 
his  lines,  lie  is  probably  reinsuring  not  the  risk  of  an  individual 
assured,  but  it  may  be  the  risks  of  a  large  number  of  original 
assureds,  each  one  of  whose  policies  involves  a  different  set  of 
oonilitions  and  the  reinsurance  contract,  especially  an  excess 
reinsurance  contract  covering  on  cargo  generally,  is  indirectly 
interested  in  all  these  differences.  It  is,  therefore,  desirable 
where  possible  that  the  reinsurance  shall  follow  precisely  the 
terms  and  conditions  of  the  original  insurance.  It  is  ordinarily 
much  easier  to  arrange  this  in  the  case  of  participating  reinsur- 
ance than  in  the  case  of  excess  reinsurance.  In  any  event  the 
difference  in  terms  between  the  original  insurance  and  the  re- 
insurance should  not  extend  beyond  a  difference  in  average  con- 
ditions, much  reinsurance  being  placed  on  F.P.A.  terms  regardless 
of  the  average  conditions  of  the  original  insurance. 

Reinsurance  at  Original  Rates. — If  reinsurance  is  placed  on 
original  terms  and  conditions,  it  simplifies  matters  greatly  to 
place  the  reinsurance  at  the  original  rates  less  a  discount  sufficient 
to  offset  the  brokerage  and  taxes  and  possibly  other  incidental 
expenses  of  the  original  underwriter.  Participating  reinsurance 
is  usually  so  placed  that  the  average  conditions  in  the  reinsurance 
policy  follow  precisely  the  original  conditions.  If,  however, 
the  average  conditions  differ,  some  allowance  should  be  made 
in  the  rate  to  compensate  the  original  underwriter  for  the  perils 
which  remain  at  his  risk.  Excess  reinsurance  may  be  placed  at 
original  rates,  but  more  often  such  reinsurance  is  arranged  on  a 
definite  schedule  of  rates. 

Market  Conditions. — Reinsurance  which  is  specially  placed 
by  an  underwriter  as  a  rule  has  to  take  its  chances  in  the  open 
market  and  often  underwriters  incur  a  heavy  loss  in  placing 
such  risks.  Again,  an  underwriter  may  find  in  the  reinsurance 
market,  other  underwriters,  who  in  an  endeavor  to  obtain  busi- 
ness, are  willing  to  quote  a  rate  which  is  less  than  that  received 
on  the  original  insurance.  Whatever  may  be  the  state  of  the 
market,  a  prudent  underwriter  will  obtain  reinsurance,  in  order 
that  he  may  retain  only  a  conservative  fine. 

Arbitrage. — Some  underwriters,  imfortunately,  will  take  ad- 
vantage of  a  full  mark(!t  and  charge  a  competitor,  who  must 
have  acconnnodation,  an  amount  greatly  in  excess  of  the  market 


REINSURANCE  295 

rate,  and  greatly  in  excess  of  what  experience  has  proved  such  a 
risk  to  be  worth,  knowing  that  he  can  under  contract  reinsurance 
or  in  some  other  reinsurance  market,  again  reinsure  the  whole 
or  a  part  of  the  risk  at  a  much  lower  rate,  thus  making  a  profit. 
If  the  whole  amount  is  reinsured  by  the  second  underwriter, 
the  difference  between  the  two  rates  will  be  clear  profit,  as  he  will 
incur  no  liability  other  than  the  guaranteeing  of  the  reinsurance 
effected  by  him.  The  profit  in  this  interchange  of  reinsurance 
is  known  as  arbitrage. 

Reinsurance  of  Unterminated  Risks. — In  some  cases  through 
mismanagement  or  through  a  series  of  unfortunate  losses,  the 
capital  of  a  company  will  become  impaired  and  not  being  able 
to  raise  additional  funds  to  make  good  the  impairment,  it  becomes 
necessary  for  the  company  to  retire  from  business.  There  will, 
of  course,  be  outstanding  at  such  time  a  number  of  unterminated 
risks,  and  in  order  that  the  settlement  of  the  affairs  of  the  liquidat- 
ing company  may  not  be  delayed  and  in  order  that  the  policy 
holders  whose  risks  are  still  unterminated  may  be  protected,  the 
liquidating  company  will  if  possible  and  if  it  has  funds  with  which 
to  pay  the  premium,  reinsure  its  outstanding  liability  with  other 
underwriters. 

Reinsurance  of  Overdue  Vessels  and  Vessels  in  Disaster. — 
It  also  happens  quite  frequently  in  the  case  of  vessels  out  of 
time,  that  is  vessels  which  are  overdue  at  their  ports  of  destina- 
tion, or  in  the  case  of  missing  vessels,  or  in  the  case  of  vessels 
which  have  met  with  disaster  and  whose  fate  is  in  doubt,  that 
underwriters  will  realize  that  they  are  carrying  lines  greater  than 
they  would  care  to  lose,  and  accordingly  go  into  the  reinsurance 
market  to  reinsure  all  or  a  part  of  their  line.  The  original  under- 
writer is  bound  in  all  cases  and  especially  in  cases  of  this  nature 
to  make  a  full  disclosure  of  the  existing  facts,  the  law  respecting 
representation,  misrepresentation  and  concealment  applying 
equally  to  direct  insurance  and  reinsurance.  It  therefore  is  only 
natural  that  market  rates  in  the  case  of  overdue  and  missing 
vessels  and  vessels  in  disaster  will  rapidly  soar,  rates  of  ninety- 
five  percent  being  sometimes  charged  where  the  condition  of 
the  vessel  is  known  or  presumed  to  be  extremely  perilous. 

Reinsurance  Bordereau.  Concurrent  Reinsurance.^ — Reinsur- 
ance when  placed  on  the  participating  or  share  ])asis,  is  usually 


200  MARIXE  INSURANCE 

tlcrlarcd  hy  lli<>  itrij^inal  iindciu  ritcr  (o  his  rcinsurci's  in  detail, 
llacli  individual  risk  is  svX  forth  on  large  sheets,  a  full  description 
of  the  voyage,  the  vessel,  sailing  date,  kind  of  goods,  average 
conditions,  amount  of  insurance  and  original  premium  charge, 
IxMng  noted.  These  sheets  are  known  as  bordereaux,  and  if 
the  reinsurance  is  placed  in  several  shares,  the  sheets  are  mani- 
folded, each  reinsuring  underwriter  receiving  his  copy.  The 
share  of  each  risk  reinsured  may  be  separately  extended  and  the 
reinsurance  premium  noted  against  it,  or  all  the  entries  on  a  sheet 
may  be  totalled,  the  percentage  of  allowance  on  the  premium 
subti-acted,  and  the  net  amount  of  premium  divided  into  shares 
as  called  for  by  the  reinsurance  contracts.  Where  more  than 
one  underwriter  is  interested  in  reinsurance,  each  taking  a  share 
on  equal  terms  and  conditions,  such  reinsurance  is  known  as 
concunent  reinsurance. 

Foreign  and  Domestic  Reinsurance.^ — Prior  to  the  outbreak 
of  the  world  war  a  large  i)ortion  of  the  reinsurance  done  in  the 
American  market  found  its  way  into  the  English  and  Continental 
markets.  However,  with  the  rapid  growth  of  marine  insurance 
in  this  country,  it  is  now  possible  to  place  large  lines  of  reinsurance 
in  the  American  market,  little  difficulty  being  experienced  in 
covering  lines  up  to  $1,000,000.  Of  course,  the  reinsuring  under- 
writers do  not  necessarily  retain  the  lines  which  they  reinsure, 
but  under  reinsurance  contracts,  or  treaties  as  they  are  sometimes 
called,  these  risks  may  be  spread  out  in  all  directions,  so  that  if 
the  placing  of  a  large  line,  say  S3,000,000  or  84,000,000,  could  1)6 
traced  in  detail,  it  would  be  found  that  portions  of  the  risk  were 
lodged  in  every  available  market  of  the  world. 

Original  Assured  Has  no  Claim  on  Reinsurance. — The  insming 
public  should  realize,  when  placing  insurance  with  companies 
of  moderate  size  who  write  large  lines,  that  the  company  whose 
policy  they  hold  probably  is  retaining  but  a  very  small  percent- 
age of  the  liability  assumed,  ^^'l^ile  in  the  event  of  a  total  loss 
the  assured  looks  to  the  original  company  for  the  payment  of 
the  less,  he  bearing  no  relation  nor  having  any  claim  against  the 
reinsuring  company,  yet  the  security  of  its  insurance  rests  in- 
directly on  the  stability  of  the  reinsuring  underwriters.  It  is, 
therefore,  pertinent  for  an  assured  to  make  inipiiry  as  to  the 
security  of  the  reinsuring  underwritei's. 


CHAPTER  18 
LOSSES.     INTRODUCTION.     GENERAL  AVERAGE 

Losses  Beneficial  to  Marine  Insurance. — Thus  far  the  consider- 
ation of  marine  insurance  has  been  from  the  constructive  side, 
which  is  primarily  engaged  in  the  accumulation  and  preservation 
of  funds  to  provide  indemnity  for  inevitable  losses.  While  it 
is  true  that  an  undue  proportion  of  losses  will  result  in  the  de- 
struction of  marine  insurance  companies,  it  is  equally  true  that 
losses  make  the  business  possible.  Underwriters  do  not  invite 
losses,  nevertheless  they  are  welcomed  in  moderation  as  furnish- 
ing the  very  best  reason  for  the  origin  and  continuance  of  the 
business  of  insuring.  When  losses  are  reduced  to  a  minimum, 
question  then  arises  whether  it  is  not  cheaper  for  an  assured  to 
carry  his  risk  than  to  insure  it.  Fortunately  for  the  insurance 
business,  the  assured  who  reasons  thus,  and  who  attempts  to  put 
his  theory  into  practice,  seldom  succeeds  and  generally  gains  an 
entirely  new  point  of  view  in  regard  to  the  hazards  of  marine 
transportation.  Experience  usually  teaches  merchants  and  ship- 
owners a  salutary  lesson  on  the  folly  of  endeavoring  to  insure 
without  having  a  wide  and  varied  distribution  of  risk.  However, 
until  nature  operating  on  the  high  seas,  changes  its  laws,  losses 
will  happen  and  the  necessity  for  marine  insurance  will  continue. 

The  Conduct  of  Loss  Matters  Important. — The  success  or 
failure  of  an  insurance  company,  while  dependent  in  considerable 
measure  on  the  judgment  shown  in  underwriting,  is  in  no  less 
degree  dependent  on  the  conduct  of  its  loss  affairs.  Undue 
liberality  in  the  settlement  of  losses  may  result  in  impairment  of 
capital,  while  unfair  or  parsimonious  methods  in  the  adjustment 
of  clahns  will  surely  be  felt  in  injured  reputation  which  is  only 
less  fatal  than  impaired  capital.  A  happy  medium  must  be 
found  where  the  assured  will  receive,  as  nearly  as  may  be,  full 
reimbursement  for  loss  suffered,  notwithstanding  the  fact  that 
there  may  be,  through  no  fault  of  his,  some  technical  objection 
to  the  claim  presented.     An  assured  in  paying  premium  expects 

297 


298  MARINE  INSURANCE 

to  piiicliaso,  not  a  lawsuit,  Imt  iiuleiiinity  against  a  possible 
loss.  He  docs  not  pretend  to  })e  an  expert  in  the  principles  of 
insurance,  but  relics  on  his  underwriter  or  his  broker  to  furnish 
the  measure  and  kind  of  protection  whicli  his  necessities  require. 
Unfortunately  the  assured  in  many  cases  is  quite  ignorant  of  the 
principles  of  insurance,  and  objects  to  paying  the  price  which 
would  purchase  the  type  of  protection  which  would  best  serve 
his  needs,  and  in  the  event  of  loss  considers  that  the  underwriter 
is  unduly  technical  or  even  unjust  when  he  refuses,  for  instance, 
to  pay  a  particular  average  claim  under  a  policy  issued  on  free 
of  average  terms  and  at  a  free  of  average  rate. 

Insurance  Funds  Must  be  Conserved. — Loss  adjusters  must 
be  technical.  It  is  only  by  the  closest  scrutinizing  of  claims,  and 
by  the  most  careful  adjustments  that  marine  insurance  can  be 
kept  on  a  paying  basis.  The  results  are  so  uncertain,  the  possi- 
bility of  a  series  of  heavy  losses  is  always  imminent,  while  the 
keen  competition  which  ordinarily  exists  in  the  marine  insurance 
market  makes  the  business  a  precarious  one,  at  best  requiring  the 
greatest  skill  in  underwriting  and  the  most  careful  conserving  of 
funds  in  the  payment  of  losses  and  in  the  cost  of  operation  in  order 
that  the  balance  may  continue  on  the  credit  side  of  the  books. 
Statistics  aid  materially  in  marine  underwriting,  but  regardless 
of  theories  evolved  from  computations,  unexpected  losses  will 
happen  and  must  be  paid.  The  assured,  in  bujing  insurance, 
receives  some  definite  kind  of  protection  and  that  alone,  just 
as  surely  as  when  he  buys  a  ton  of  coal  he  gets  only  coal  and  not 
in  addition  a  quantity  of  kindling  wood  to  ignite  the  coal.  The 
business  of  loss  adjusting  is  primarily  engaged  in  measuring  what 
the  assured  has  bought  and  delivering  his  purchase  to  him  in 
the  form  of  indemnity  for  loss,  a  task  that  at  times  requires  the 
wisdom  of  a  Solomon,  in  view  of  the  clauses  which  underwriters 
and  brokers  devise. 

Loss  Adjusting  a  Profession. — The  profession  of  loss  adjusting, 
while  conducted  in  connection  with  and  as  a  necessary  part  of 
marine  underA\Titing,  is  a  science  in  itself  and  requires  a  different 
kind  of  training  from  that  which  develops  a  successful  under- 
writer. It  is  true  that  underwriters  as  a  rule  understand  the 
theory  of  loss  adjusting  and  in  fact  can,  and  do,  if  necessary 
adjust  losses,  but  a  too  close  adhesion  to  the  caution  and  care 


LOSSES.     INTRODUCTION.     GENERAL  AVERAGE        299 

needed  in  the  adjustment  of  losses,  is  apt  to  result  in  timidity 
in  underwriting.  Constant  devotion  to  the  adjustment  of 
losses  is  apt  to  produce  a  state  of  mind  where  every  risk  written 
represents  a  possible  loss  rather  than  a  possible  safe  arrival, 
an  attitude  of  mind  in  an  underwriter  that  can  lead  only  to  over- 
conservatism  in  the  selection  of  risks.  Better  underwriters  are 
produced  when  the  underwriter  has  a  thorough  knowledge  of 
underwriting  and  a  theoretic  knowledge  of  loss  adjusting.  The 
converse  is  equally  true  that  a  better  loss  adjuster  results  from  a 
mind  expert  in  the  technique  of  loss  adjusting  with  a  theoretic 
knowledge  of  underwriting. 

Specialization  in  Loss  Adjusting. — The  field  of  average  or  loss 
adjusting  is  so  broad  that  speciaHzation  has  resulted.  We  find 
some  adjusters  who  devote  their  time  to  losses  on  special  in- 
terests, that  is,  to  particular  average  and  total  loss  cases.  Others 
will  confine  their  work  exclusively  to  general  average  adjusting ~ 
which  is  a  science  in  itself  and  one  requiring  the  highest  degree 
of  skill.  General  average,  as  has  already  been  indicated,  is  a 
much  older  method  of  maritime  protection  than  is  marine  in- 
surance. Its  principles  are  founded  on  maritime  law,  and  not  on 
the  law  of  marine  insurance.  General  average  adjustments  are 
never  made  in  the  offices  of  marine  insurance  companies.  They, 
however,  retain  on  their  staffs  men  skilled  in  the  criticism  of 
general  average  adjustments,  who  examine  the  statements  as 
prepared  by  the  adjusters  to  see  whether  or  not  the  interests  of 
all  concerned  in  the  case  have  been  safeguarded. 

General  Average. — It  is  felt  by  many  that  had  marine  insur- 
ance, as  at  present  practised,  been  devised  twenty-five  hundred 
years  ago  the  need  for  general  average  would  never  have  arisen. 
Marine  insurance  furnishes  all  the  protection  needed  in  the 
conduct  of  maritime  ventures,  and  if  a  condition  of  affairs  could 
be  conceived  where  general  average  was  proposed  as  a  new  theory 
to  aid  in  the  conduct  of  marine  insurance,  it  would  probably  be 
dismissed  as  out  of  harmony  with  modern  business  methods. 
Antedating  marine  insurance,  however,  the  practice  of  general 
average  has  become  deeply  rooted  in  the  commercial  law  of  all 
maritime  nations.  The  old  Rhodian  Law  promulgated  in  the 
tenth  century  B.  C.  provided  for  general  average  contributions  in 
the  case  of  jettisons.     Whether  this  theory  of  distributing  losses 


300  MARIXE  INSURANCE 

<»tip;in;it(>(l  willi  llic  I'vliodiaiis  or  \v;is;u'(iuircil  l>y  t  liciii  fi-<>iiioarlier 
nuistiTs  of  the  sea,  is  of  Jit  tic;  luoiiicnl,  the  fact  iciuains  I  hat,  the 
idea  of  wliich  the  earhest  record  is  found  in  tlie  Kliodian  Laws, 
was  incorporated  in  the  Roman  Civil  Law.  During;  the  Dark  Ages 
no  trace  is  found  of  the  tlieory,  hut  witli  llio  revival  of  iMU'opean 
connnerce  in  the  ^Middle  Ages,  general  average  again  appears  as  a 
part  of  the  sea  codes,  existing  side  by  side  with  marine  insurance, 
hut  se[)arate  from  it.  IMarine  insurance  was  interested  only 
indirectly  in  general  average  and  general  average  was  not  direct h' 
concerned  with  marine  insurance.  These  two  forms  of  maritime 
protection  existed,  each  fulfilling  its  separate  mission.  Mer- 
chants who  suffered  loss  in  general  average  sacrifices  did  not 
seek  reimbursement  under  their  insm'ance  policies  until  they  had 
received  contribution  from  the  other  interests  involved,  when 
they  made  claim  upon  their  underwriters  for  the  proportion  of 
the  loss  not  made  good  in  general  average,  hi  fact,  it  is  only 
within  the  last  half  century  that  the  assured  has  made  claim 
directly  on  the  underwriter  for  losses  suffered  in  general  average 
sacrifices.  The  underwriter  now  reimburses  the  assured  for 
losses  suffered,  awaiting  the  stating  of  the  average  in  order  to 
receive  recoupment  from  the  contributions  made  for  the  benefit 
of  the  lost  or  damaged  property. 

No  Reasonable  Substitute  for  General  Average  Yet  Found. 
— The  abandonment  of  the  practice  of  general  average  has  been 
advocated  in  recent  years,  the  great  object  in  modern  business  life 
being  to  use  short  cuts  and  to  do  away  with  unnecessary  detail. 
While  it  doubtless  w^ould  be  desirable  to  eliminate  the  inevitable 
detail  and  expense  connected  with  the  stating  of  general  average, 
no  practical  plan  has  been  fornmlated  to  accomplish  this  end. 
On  the  other  hand,  the  fact  cannot  be  ignored  that  the  existence 
of  tlic  law  of  general  average  has  a  salutary  effect  in  preventing 
the  unnecessary  destruction  of  property  through  jettison  or 
otherwise  in  efforts  to  save  vessels  in  positions  of  perils.  If  the 
ship  had  not  been  legally  bound  to  contribute  for  jettisoned 
cargo,  there  is  little  doubt  that  much  more  cargo  would  have 
been  destroyed  in  the  past.  No  solution  of  the  general  average 
problem  will  be  satisfactory  which  merely  eliminates  the  detail 
of  the  present  system  without  preserving  its  beneficial  features. 
It  may  be  that  a  closer  union  between  the  nations  in  the  future 


LOSSES.     INTRODUCTION.     GENERAL  AVERAOE        'A0\ 

may  make  possible  international  enactment  on  the  subject. 
In  the  meantime,  general  average  is  engrafted  on  marine  insur- 
ance and  is  of  such  great  importance,  that  no  consideration  of 
marine  insurance  can  be  complete  without  at  least  some  outline 
of  the  underlying  principles  of  this  branch  of  maritime  law  and 
practice  being  given. 

Definition  of  General  Average. — A  general  average  loss  is  one 
which  is  the  result  of  a  sacrifice  voluntarily  made,  under  for- 
tuitous circumstances,  of  a  portion  of  either  ship  or  cargo  or  the 
voluntary  incurrence  of  expense  for  the  sole  purpose  of  preserving 
the  common  interest  from  an  impending  danger.  When  a  vessel 
becomes  involved  in  a  peril,  and  in  order  to  save  the  common 
venture  from  that  peril  or  to  extricate  it  from  its  ultimate  results, 
sacrifices  are  made  or  expenses  are  incurred  by  the  master, 
acting  for  the  benefit  of  all  concerned,  these  sacrifices  and  ex- 
penses must  be  borne  by  all  the  interests  involved,  whether 
ship,  freight  or  cargo,  in  the  proportion  which  the  amount  pre- 
served to  each  interest  bears  to  the  total  value  saved.  The  task 
of  determining  the  sum  which  each  interest  shall  pay,  or,  in  the 
event  of  an  interest  having  been  called  upon  to  make  a  sacrifice, 
the  amount  which  it  shall  receive,  is  accomplished  by  the  general 
average  adjusters  to  whom  reference  has  been  made.  The 
amount  of  detail  involved  in  these  cases  depends  in  large  measure 
on  the  number  of  interests  involved.  The  preparation  of  a 
general  average  adjustment  in  the  case  of  a  vessel  carrying  bulk 
cargo  which  is  owned  by  one  interest  is  a  simple  matter.  In 
the  case  of  a  large  steamer,  however,  loaded  with  a  miscellaneous 
cargo  owned  by  hundreds  of  different  shippers  or  consignees,  the 
stating  of  the  general  average  is  a  task  involving  tremendous 
detail.  The  final  average  adjustment  as  published  and  distrib- 
uted to  underwriters  and  shippers  for  their  examination  in  such 
cases  sometimes  occupies  two  or  three  volumes  of  five  hundred 
pages  each. 

The  General  Average  Adjuster. — The  average  adjuster  takes 
complete  charge  of  the  case.  He  is  usually  appointed  by  the 
owner  of  the  vessel  since  this  is  as  a  rule  the  largest  single  interest 
involved.  When  the  vessel  is  released  from  the  peril  and  arrives 
at  the  port  of  destination,  the  master  is  required  to  keep  the 
interests  together  until  security  is  given  for  the  payment  of  such 

21 


302  MATilXE  INSURANCE 

charges  as  may  be  assessed  against  each  interest  involved  in  the 
venture.  Accordingly  a  form  of  general  average  bond  (sec  appen- 
dix, p.  424)  is  prepared  which  recites  the  circumstances  under 
which  llie  general  average  sacrifices  were  made  and  the  expenses 
incurred,  and  wherein  the  signatories  of  the  bond  agree  with  the 
owners  of  the  vessel  and  with  one  another  to  provitle  all  necessary 
information  and  also  obligate  themselves  to  pay  the  losses  and 
expenses  therein  mentioned  which  may  be  shown  to  be  a  charge 
on  the  cargo  of  the  vessel  when  the  adjustment  is  completed. 
In  addition  to  this  bond,  the  adjusters  may  also  demand  security 
for  the  pajonent  of  the  charges  before  they  will  release  the  goods. 
This  security  is  given  in  one  of  two  ways.  If  the  goods  are  not 
insured,  the  owner  is  required  to  make  a  cash  deposit  sufficient 
to  cover  the  estimated  charges  which  may  finally  be  assessed 
against  his  particular  interest.  If  the  property  is  insured  with 
an  insurance  company,  the  adjusters  are  usually  willing  to  accept 
the  guaranty  of  the  underwriters  for  such  charges  (see  appendix, 
p.  426). 

Laws  of  General  Average  Not  Uniform. — There  are  no  limits 
set  with  respect  to  the  circumstances  out  of  wliich  a  valid  general 
average  maj-  arise.  The  laws  of  the  various  maritime  countries 
differ  from  each  other,  and  in  our  own  country  there  is  no  uni- 
formity between  the  customs  of  the  various  states  respecting 
general  average.  Efforts  have  been  made  to  reconcile  the  differ- 
ences and  to  produce  an  international  code  of  general  average — 
the  York-Antwerp  rules,  to  which  reference  will  be  made, 
being  the  nearest  approach  to  such  a  code.  Associations  of 
average  adjusters  organized  in  this  and  other  countries  have 
adopted  rules  for  the  adjustment  of  general  average  cases,  but 
none  of  these  efforts  changes  the  law  of  general  average  as  devel- 
oped in  the  various  countries.  Tliis  code  and  these  rules  when 
agreed  to  by  the  interested  parties  merely  furnish  a  basis  for 
adj  ustment,  but  in  so  far  as  these  rules  do  not  cover  the  particular 
point  involved,  the  law  of  tlie  land  where  the  adjustment  is  to  be 
made  or  the  customs  of  the  port  will  prevail. 

Elements  Necessary  to  VaHd  General  Average. — The  elements 
necessary  to  make  a  valid  claim  for  general  average  differ  in  the 
various  countries,  but  the  underlying  principle  is  the  same  in  all. 
In  the  United  States  it  is  established  that  the  following  circum- 


LOSSES.     INTRODUCTION.     GENERAL  AVERAGE        303 

stances  must  appear  in  a  case  in  order  that  the  right  to  claim 
general  average  contribution  may  arise: 

1.  The  existence  or  the  rapid  approach  of  a  peril  common  to  all  the 
interests,  hull,  freight  and  cargo. 

2.  A  voluntary  sacrifice  reasonably  made  or  an  extraordinary  ex- 
pense justifiably  incurred  to  avert  the  peril  or  to  save  the  common 
interests  from  the  effects  of  the  peril. 

3.  The  preservation  of  a  part  of  the  venture. 

4.  Freedom  from  fault  on  the  part  of  those  interested  in  the 
venture  claiming  contribution. 

The  Peril  and  the  Sacrifice.— While  the  number  of  perils  which 
give  rise  to  general  average  contribution  has  increased  greatly 
since  the  original  Rhodian  theor}^  of  requiring  contribution  for 
jettison,  the  underlying  principle  governing  the  right  to  demand 
contribution  has  not  changed.  A  peril  must  exist  which  it  is  to 
the  advantage  of  each  and  every  interest  in  the  venture  to  avoid, 
that  is,  the  peril  must  be  of  such  a  nature  that  there  is  impending 
danger  of  physical  injury  to  the  common  interest.  If  a  peril  of 
this  kind  exists  then  voluntary  sacrifices  which  are  reasonably 
made  in  order  to  avert  it,  or  to  free  the  venture  from  the  probable 
effects  of  such  danger,  must  be  paid  for  by  a  ratable  contribution 
made  by  all  concerned  in  the  venture.  These  sacrifices  may 
consist  of  the  actual  destruction  or  loss  of  part  of  the  vessel  or  its 
cargo  as  in  the  case  of  cutting  away  masts  or  spars  or  the  jettison 
of  goods  to  relieve  the  ship.  Or  they  may  be  consequential  dam- 
age resulting  from  efforts  to  save  the  venture  as  when  the  engines 
of  a  steamer  or  the  sails  of  a  ship  are  subjected  to  uses  of  a  differ- 
ent nature  from  those  for  which  they  were  designed.  Thus,  if  a 
steamer  is  stranded  and  in  an  effort  to  float  the  vessel  and  thus 
save  the  entire  venture,  the  engines  are  worked  in  an  unusual 
manner  and  injured,  it  seems  reasonable  that  such  injury  so 
incurred  to  the  machinery  should  be  made  good  by  all  the 
interests.  In  the  case  of  a  vessel  on  fire,  water  or  steam  may  be 
forced  into  the  hold  in  an  endeavor  to  extinguish  the  flame, 
doing  damage  to  cargo  which  was  not  touched  by  the  fire.  The 
damage  to  such  cargo  having  been  incurred  voluntarily,  in  an 
effort  to  benefit  all  concerned,  should  also  be  made  good. 

The  Preservation  of  Part  of  the  Venture. — It  may  happen  that 
after  these  voluntary  sacrifices  have  been  made  the  entire  ven- 


'M)\  MAh'l  \  /-;  I.\srR  A  NCR 

liirc  will  hocoino  a  total  loss.  In  such  a  case  the  sacrifices  made 
have  accomplished  no  useful  purpose  and  the  cargo  destroyed 
has  merely  met  an  earlier  fate  than  that  which  was  temporarily 
benefited  by  the  sacrifices.  It  is,  thorcforo,  a  rule  of  general  aver- 
age practice  that  there  must  result  from  the  sacrifices  made  the 
saving  of  a  part  at  least  of  the  venture.  At  times  expenses  are 
incurred  by  the  master  for  the  general  benefit,  which,  if  reason- 
ably and  justifiably  incut  red  must  be  contributed  for.  It  may 
happen,  however,  that  after  such  expenses  have  been  incurred  or 
disbursements  made  for  the  general  benefit,  that  the  venture 
will  be  completely  lost.  The  purpose  of  general  average 
contributions  is  to  work  exact  justice  among  the  various 
interests  exposed  to  the  common  peril,  and  it  does  not  seem  just 
that  the  subsequent  loss  of  the  venture  should  shift  the  burden 
of  responding  for  general  average  expenses  incurred  or  disburse- 
ments made  prior  to  such  loss  on  to  the  master  or  the  owner  of 
the  vessel.  The  master,  during  such  a  time  of  stress  is  not  alone 
the  agent  of  the  owner  of  the  vessel,  but  is  also  the  agent  of  each 
and  every  interest  involved  in  the  venture,  and  if  acting  within 
the  bounds  of  such  agency  in  incurring  the  expenses  or  in  making 
the  disbursements,  each  interest  is  bound  for  its  ratal)le  propor- 
tion of  sucn  expenses  and  disbursements  based  on  the  values 
existing  at  the  time  the  expenses  were  incurred  or  the  disburse- 
ments made.  It  is  possible  in  manj^  cases  for  the  master  or  agents 
to  insure  the  amount  of  their  expenses  and  disbursements  against 
the  risk  of  a  subsequent  loss  of  the  vessel,  but  such  insurance  does 
not  seem  to  be  obligatory  on  the  part  of  the  master  nor  is  the 
procurement  of  such  insurance  always  possible.  If  the  money 
disbursed  is  raised  by  the  h3-pothecation  of  the  ship  or  cargo 
under  a  bottomry  or  respondentia  bond,  then  the  subsequent 
loss  of  the  vessel  will  relieve  the  interests  involved  from  the  duty 
of  contributing,  because  the  lender,  in  consideration  of  the  high 
rate  of  interest  received  on  his  loan,  assumes  the  risk  of  non-pay- 
ment through  loss  of  the  venture.  In  these  days  of  rapid  com- 
munication by  telegraph  the  raising  of  money  by  bottomry  is 
discouraged. 

What  is  a  Voluntary  Sacrifice? — While  it  is  essential  that  the 
sacrifice  made  be  a  voluntary  one,  great  latitude  is  given  to  the 
meaning  of  voluntary.     It  may  be  that  under  circumstances  of 


LOSSES.     INTTiODJrcriON.     GENERAL  AVERAC'E        305 

peril  but  a  single  course  is  open  to  the  master,  which  he  follows 
intuitively.  If,  however,  in  pursuing  this  natural  course  the 
vessel  and  cargo  are  subjected  to  hazards  of  an  unusual  nature  and 
not  in  the  ordinary  contemplation  of  the  parties  the  sacrifice 
will  nevertheless  be  considered  as  voluntary.  Whether  the  loss 
was  reasonably  incurred  is  also  considered  in  the  light  of  the  cir- 
cumstances existing  at  the  tiine.  Allowance  is  made  for  the  fact 
that  decisions  must  be  quickly  reached  when  a  peril  is  impending. 
An  action  taken  in  the  face  of  a  rapidly  approaching  peril  might 
involve  unnecessary  sacrifice  when  considered  in  the  light  of 
subsequent  events,  nevertheless  if  such  action  was  justifiable 
under  the  circumstances,  allowance  will  be  made  for  the  sacrifice 
incurred.  However,  contribution  will  not  be  allowed  for  sacri- 
fices made  if  the  claimant  is  in  any  way  willfully  responsible  for 
such  sacrifices.  General  average  was  instituted  and  has  been 
continued  by  the  maritime  law  for  the  purpose  of  working  equity 
among  persons  whose  interests  have  been  exposed  to  a  common 
peril,  some  of  which  have  been  sacrificed  for  the  saving  of  the 
rest,  and  equity  cannot  be  administered  where  the  claimants  do 
not  come  into  the  adjustment  of  the  loss  with  clean  hands. 

The  General  Average  Adjustment, — General  average  adjust- 
ments are  made  as  a  rule  according  to  the  law,  customs  and 
usages  of  the  port  of  destination  unless  otherwise  agreed  in  the 
contract  of  affreightment  as  in  the  case  of  bills  of  lading  calling 
for  adjustment  in  accordance  with  York-Antwerp  Rules.  If  the 
voyage  is  broken  up  at  a  port  of  refuge  it  is  customary  to  make 
the  adjustment  in  accordance  with  the  law  and  customs  of  that 
port  unless  otherwise  agreed  in  the  contract  of  affreightment. 
Where  there  is  cargo  destined  for  various  ports  and  there  is  no 
agreement  to  the  contrary,  adjustment  may  be  demanded  with 
respect  to  the  cargo  destined  for  each  port  in  accordance  with 
the  law  and  usages  of  that  port.  The  adjustment  is  not  made  up 
until  the  arrival  of  the  vessel  or  cargo  at  destination. 

Contributory  Value  of  Hull. — The  average  adjuster  having 
obtained  the  signatures  of  the  interested  parties  to  the  general 
average  bond  and  having  obtained  either  underwriters'  guarantees 
or  cash  deposits  as  security  for  the  bond,  proceeds  with  the  com- 
pilation of  the  facts  necessary  to  fix  a  proper  apportionment  of 
the  sacrifices  made,  of  the  expenses  incurred  and  of  monies  dis- 


300  MARIXE  IXSUItANCE 

l)iirs(>(l.  ( '()iilii])utl(»ii  hcin^'  iiijido  on  llie  lU'l  saved  value  plus 
the  auK)un(  made  ^ood  lo  the  interest  because;  of  sacrilice  made, 
it  becomes  necessary  for  the  adjusters  to  fix  a  valuation  of  every 
interest  concerned  in  the  venture.  The  vessel  is  vahuul  at  the 
port  at  which  the  voyage  terminates  in  her  existing  condition 
less  the  cost  of  any  repairs  made  subsequent  to  the  general  average 
act  and  prior  to  arrival,  which  value  represents  the  amount  saved 
to  tiie  owner  by  the  general  average  act.  It  is  always  a  difficult 
matter  to  determine  the  real  value  of  a  vessel,  and  the  fact  that  a 
ship  when  ])cing  valued  for  general  average  purposes  is  usually 
in  a  damaged  condition,  adds  not  a  little  to  the  difficulty  of  arriv- 
ing at  a  fair  valuation.  Since  the  amount  of  payment  to  be  made 
depends  on  the  contributory  value,  the  vessel  owner  will,  as  a  rule, 
seek  to  have  a  low  valuation  made,  whereas  the  cargo  owners 
will  naturally  seek  a  high  value  for  the  vessel  so  that  their  con- 
tributions may  be  correspondingly  reduced.  As  the  valuation 
of  a  vessel  may  be  considered  from  several  angles,  such  as  the 
cost  of  replacement,  her  freight-earning  capacity  or  her  location 
with  respect  to  possible  freight  engagements,  the  situation 
presented  is  one  of  no  little  difficulty.  It  is  customary  for  the 
adjusters  to  obtain  the  certificate  of  an  expert  as  to  the  value  of 
the  vessel. 

Freight  Contribution. — Freight  contributes  on  the  basis  of  bill 
of  lading  freight.  If  such  freight  is  at  the  risk  of  the  vessel  owner, 
a  deduction  varying  from  one-third  to  one-half  is  made  in  the 
United  States  to  offset  the  actual  expense  of  earning  the  freight 
after  the  general  average  act.  This  deduction  is  an  arbitrary  one 
made  regardless  of  the  point  on  the  voyage  where  the  act  occurred. 
Just  as  the  vessel  contributes  on  the  net  amount  saved  by  the  gen- 
eral average  act,  so  the  freight  should  contribute  on  the  net 
amount  of  freight  saved.  It  is  on  this  basis  that  freight  con- 
tributes under  the  York-Antwerp  rules  and  a  shnilar  basis  of 
value  for  freight  is  used  under  the  rules  of  practice  of  the  Associa- 
tion of  Average  Adjusters  of  the  United  States.  If  the  freight 
is  prepaid  or  guaranteed  then  as  already  explained  it  is  in  reality 
part  of  the  value  of  the  cargo  and  is  included  in  such  value  for 
purposes  of  contribution.  The  same  difficult  questions  arise 
in  regard  to  freight,  in  a  general  average  adjustment,  as  do  in 
the  insuring  of  the  interest  itself,  and  the  same  rule  applies, 


LOSSES.     INTRODUCTION.     GENERAL  AVERAGE        307 

namely,  that  he,  at  whose  risk  the  freiglit  is,  is  hable  for 
contribution  in  general  average. 

Contributory  Value  of  Cargo. — Cargo  is  valued  for  purposes  of 
general  average  contribution  at  its  gross  wholesale  value  at  the 
port  of  destination  in  its  then  condition,  less  charges  which  accrue 
upon  arrival,  such  as  freight,  duty,  cartage,  and  other  necessary 
expenses  entering  into  the  wholesale  market  value  at  destina- 
tion. This  does  not,  of  course,  include  the  cost  of  insurance,  or 
any  other  charges  which  have  already  entered  into  the  cost  of 
the  goods.  To  the  net  value  thus  determined  is  added  any 
amount  made  good  in  general  average  and  there  is  deducted 
any  special  charges,  arising  out  of  the  casualty,  that  are  a  lien  on 
the  particular  item  of  cargo  under  valuation. 

General  Average  Cases  are  Often  Complicated. — The  adjusters 
receive  tenders  for  the  repair  of  any  damage  which  may  have  been 
received  by  the  vessel  and  an  apportionment  is  made  of  those 
damages  which  are  the  result  of  general  average  sacrifices  and 
those  which  are  the  result  of  ordinary  marine  perils.  It  must  be 
observed  that  many  times  in  general  average  adjustments  there  is 
a  combination  of  general  average  losses  and  disbursements,  par- 
ticular average  losses  and  special  charges  which  are  incurred 
solely  for  the  benefit  of  particular  interests.  This  may  be  illus- 
trated by  the  case  of  a  vessel  which  is  discovered  on  fire  at  sea. 
In  order  to  extinguish  the  fire  and  save  all  the  interests  con- 
cerned, the  hatches  will  be  battened  down,  the  ventilators 
closed  and  either  steam  or  water  turned  into  the  hold  in  an  en- 
deavor to  extinguish  the  fire.  If  the  efforts  are  successful,  it  will 
doubtless  be  found  that  only  part  of  the  cargo  in  that  par- 
ticular hold  has  been  on  fire,  and  that  packages  not  reached  by 
the  fire,  have  nevertheless  been  badly  damaged  by  the  effect 
of  the  steam  or  the  water  used  in  the  effort  to  extinguish  the  fire. 
In  this  particular  case,  the  only  items  for  which  general  average 
contribution  would  be  made  are  for  those  portionsof  the  vessel  and 
cargo  which  have  suffered  by  the  water  or  the  steam  or  through  the 
efforts  made  to  introduce  the  water  or  the  steam  and  for  extraor- 
dinary expenditures  incurred  in  the  general  interest.  The  con- 
sequential loss  or  expenditures  due  to  sacrifice  for  the  general 
benefit,  must  be  made  good  in  proportion  to  the  values  saved. 
The  actual  damage  to  the  ship  or  cargo  by  the  fire  itself  or  any 


.lOS  MAh'JM':  I.XSlUx'ANCE 

expense  due  solely  in  consequence  (heicof  is  not  a  general  av(>rage, 
l)u<  a  particular  average  loss  or  a  special  charge,  for  which  the 
afTecled  inleresls  alone  are  responsil)le. 

Statement  of  Both  General  and  Particular  Average. — The  fore- 
going illustration  will  give  some  idea  of  the  many  and  perplexing 
problems  with  which  average  adjusters  are  confronted.  The 
average  statement  does  not  necessarily  confine  ils(>lf  to  the  gen- 
eral average  loss  alone,  but  may  also  state  the  particular  average 
losses,  when  this  is  necessary  in  order  that  the  general  average  loss 
may  be  accurately  determined.  Furthermore,  in  the  case  of  a 
severe  fire,  manj^  cargo  interests  may  become  unidentifiable, 
some  of  which  are  fire  damaged  and  some  merely  water  damaged. 
It  will  be  apparent  that  in  a  general  cargo  steamer  where  hun- 
dreds of  interests  are  involved,  the  adjustment  with  respect  to 
the  unidentifiable  cargo  is  a  matter  requiring  considerable  care 
and  skill.  Then  too  in  the  case  of  the  vessel  itself  in  the  event  of 
stranding,  not  voluntary,  where  the  engines  have  been  worked 
in  an  effort  to  extricate  the  vessel,  and  where  the  vessel  has  been 
subjected  to  many  unusual  stresses,  adjusters  are  confronted  with 
a  very  difficult  problem  in  determining  what  damage  is  the  result 
of  the  stranding  itself  and  at  the  risk  of  the  vessel  and  what  in- 
juries should  be  contributed  for  as  sacrifices  made  in  the  general 
interest.  It  sometimes  happens  that  during  a  single  voyage  two 
entirely  separate  general  average  acts  will  be  made.  Because 
of  jettisons  or  possible  delivery  of  cargo  at  intermediate  ports 
reached  during  the  interim  between  the  two  sacrifices,  the  interests 
involved  in  each  case  are  not  the  same,  leading  to  complications 
wdiich  require  the  use  of  all  the  analytical  powers  for  which 
general  average  adjusters  are  noted. 

York-Antwerp  Rules. — In  an  effort  to  reconcile  the  differences 
in  general  average  practice  in  the  various  commercial  nations 
The  Association  for  the  Reform  and  Codification  of  the  Law  of 
Nations  held  a  meeting  at  York,  England,  in  18()4  and  another 
meeting  at  Antwerp  in  1877,  when  a  code  of  rules  for  the  stating 
of  general  average  was  adopted  known  as  the  "York-Antwerp 
Rules."  Later  on  in  1890,  the  Association  again  met  at  Liver- 
pool, where  the  code  was  revised  and  the  "York-Antwerp  Rules, 
1890"  were  promulgated  (see  appendix,  p.  419).  This  code 
does  not  pretend  to  cover  the  entire  field  of  general  average,  but 


/>OA'.S7';.s'.     /  .V  THOl)  I '( 'TION.     (I  UN  ERA  L  A  I  KRAilE         300 

merely  sets  down  certain  definite  rules  with  respect  to  the  ad- 
justment of  general  average  losses  arising  out  of  certain  specified 
circumstances. 

Provisions  for  York-Antwerp  Adjustments. — It  is  customary 
in  bills  of  lading  to  provide  that  adjustment  of  general  average 
shall  be  made  in  accordance  with  the  "  York- Antwerp  Rules, 
1890,"  and  it  is  also  usual  to  have  provision  made  in  insurance 
policies  that  general  average  may  be  so  adjusted.  In  so  far, 
however,  as  the  " York- Antwerp  Rules"  do  not  apply  to  the 
particular  facts  involved,  the  law  applying  at  the  port  of  destina- 
tion or  at  the  port  where  by  mutual  consent  the  adjustment  is 
made,  is  the  law  which  should  determine  the  mode  of  adjustment. 

Jettison  and  Fire. — A  brief  summary  of  the  "York-Antwerp 
Rules,  1890"  will  throw  some  light  on  the  sacrifices  which  are  in 
the  nature  of  general  average  and  are  so  adjusted.  The  first 
rule  in  this  code  provides  that  ''no  jettison  of  deck  cargo  shall 
be  made  good  in  general  average."  When  this  rule  came  to  be 
applied,  it  was  quickly  perceived  that  in  the  case  of  certain 
trades,  such  as  the  lumber  trade,  where  it  is  customary  and 
prudent  to  carry  a  considerable  portion  of  the  cargo  on  deck,  that 
the  enforcement  of  this  rule  worked  a  hardship  on  the  cargo 
owners.  Accordingly  the  practice  has  arisen  in  connection 
with  trades  where  by  custom  cargo  is  laden  on  deck,  to  make 
provision  in  the  contract  of  affreightment  for  the  amendment 
of  the  Y'ork- Antwerp  Rule  No.  1  so  that  the  word  "no"  is 
omitted  and  contribution  is  thus  allowed  for  the  jettison  of  such 
deck  cargo.  If  in  the  ordinary  case  cargo  is  jettisoned  for  the 
general  safety,  all  consequential  losses  arising  from  such 
jettison,  to  the  vessel  itself  or  to  the  other  cargo  through  admis- 
sion of  water  to  the  holds  on  account  of  the  uncovering  of  the 
hatches  to  extract  the  cargo  or  from  any  other  cause  directly 
resulting  from  the  sacrificial  act,  are  admitted  in  general  average. 
So  in  the  case  of  extinguishing  fire  on  shipboard,  where  damage 
results  from  measures  taken  to  extinguish  the  fire,  or  through  the 
beaching  or  scuttling  of  a  burning  ship,  allowance  is  made  for  such 
consequential  damage.  No  allowance  is  made,  however,  for 
damage  directly  caused  by  the  fire  itself. 

Cutting  Away  Wreck.  Stranding. — Where  a  vessel  has  been 
partially  wrecked  by  a  sea  peril  and  portions  of  the  spars  remain, 


:no  }fAnrxE  insurance 

I  he  cutting  HWiiy  of  these  reiiiiiaiils  is  not  :illo\ve(l  foi-  in  general 
average  under  the  York-Antwerp  Rules.  Untler  the  law  of  the 
United  States,  however,  allowance  would  be  made  for  such 
jiarts  cut  away,  if  there  would  have  been  a  reasonable  chance, 
but  for  the  continuance  of  the  storm,  of  saving  the  parts  and  if 
saved,  they  would  have  been  of  some  value.  Rule  No.  5,  of  the 
York-Antwerp  Code  pro  vie  les  that  if  a  ves.sel  is  voluntarily  stranded 
under  circumstances  where  if  such  course  were  not  adopted  it 
would  inevitably  sink,  or  drive  on  shore  or  on  the  rocks,  no  allow- 
ance shall  be  made  for  loss  or  damage  to  ship,  cargo  or  freight, 
but  that  in  all  other  cases  of  voluntary  stranding  for  the  common 
safety  the  consequential  loss  or  damage  shall  be  allowed  as  general 
average.  The  restriction  in  this  rule  with  respect  to  voluntary 
stranding  when  a  vessel  is  in  inevitable  danger  of  being  sunk 
or  tlriven  on  the  shore  or  on  rocks  is  not  in  agreement  with  the 
law  in  the  United  States  where  it  is  sufficient  to  establish  a  case 
for  contribution  in  general  average,  to  show  that  the  vessel  was 
selected  to  make  a  voluntary  sacrifice  for  the  purpose  of  saving 
the  remainder  of  the  associated  interests.  The  fact  that  the 
vessel  would  apparently  in  any  event  have  been  lost  does  not 
destroy  the  right  of  the  vessel  to  recover  contribution  from  the 
cargo  if  it  be  saved  because  of  the  sacrifice  of  the  vessel.  The 
possibility  always  remains  that  through  some  unexpected  cir- 
cumstance, the  vessel  if  not  voluntarily  stranded  might  have 
been  saved. 

Injury  to  Engines  or  Sails, — The  Y'ork-Antwerp  Rules  provide 
that  allowance  is  to  be  made  for  damage  caused  to  the  sails  of  a 
vessel  or  to  the  engines  of  a  steamer  or  vessel  propelled  by  me- 
chanical power,  when  such  damage  is  the  result  of  efforts  made  to 
float  a  stranded  ship.  To  aid  in  floating  a  vessel  which  is  ashore, 
it  is  usual  to  discharge  into  lighters,  her  fuel,  cargo  and  stores  in 
order  to  lighten  her.  The  cost  of  such  extra  handling,  lighter 
hire  and  reshipment  of  goods  is  admitted  as  general  average. 
If  a  steamer  when  leaving  her  port  of  departure  is  adequately 
equipped  with  fuel  for  the  prosecution  of  the  proposed  voyage, 
but  because  of  perils  encountered  or  other  fortuitous  conditions, 
so  much  is  burned  that  she  runs  short  of  fuel  and  in  order  to 
bring  the  entire  venture  safely  to  destination  the  ship's  stores  or 
parts  of  the  vessel  or  cargo  are  burned  to  produce  power,  or  the 


LOSSES.     INTRODUCTION.     GENERAL  AVERAGE        311 

vessel  is  necessitated  to  make  a  port  of  refuge  to  obtain  a  t^ui)i)l\- 
of  fuel,  such  extraordinary  sacrifices  and  expenses  are  treated 
as  general  average.  Unusual  expenses  incurred  at  a  port  of 
refuge  for  the  common  interest  are  general  average  expenses  and 
the  wages  and  maintenance  of  the  crew  in  such  port  of  refuge 
are  also  contributed  for.  When  damage  is  suffered  by  cargo 
in  the  act  of  discharging,  storing,  reloading  and  stowing  because 
of  a  general  average  act,  such  damage  is  contributed  for,  only 
when  the  cost  of  these  measures  respectively  is  admitted  as 
general  average. 

Thirds  Off.  Separation  of  General  and  Particular  Average. — 
When  repairing  damages  which  were  caused  to  vessels  through 
general  average  sacrifices,  it  was  formerly  the  custom  to  deduct 
one-third  from  the  cost  of  such  repairs,  on  the  principle  that  new 
material  was  being  supplied  for  old.  The  injustice  of  this  in  the 
case  of  new  vessels  and  in  the  case  of  metal  vessels  was  so  appar- 
ent that  Rule  No.  13  of  the  York-Antwerp  Code  provides  a 
definite  scale  for  such  deductions.  It  is  necessary  for  average 
adjusters  to  exercise  the  greatest  care  to  allow  in  general  average 
only  such  repairs  to  vessels  as  are  the  result  of  the  general  average 
act,  charging  against  the  owner  such  repairs  as  are  made  nec- 
essary by  injury  suffered  through  marine  perils.  When  tem- 
porary repairs  are  made  to  a  vessel  no  deduction  of  thirds  is 
made  as  the  temporary  repairs  are  of  no  permanent  benefit  to 
the  owner  of  the  vessel. 

Freight. — If  the  freight  is  not  prepaid  and  therefore  is  not  a 
part  of  the  value  of  the  goods,  it  also  is  an  interest  involved 
in  the  general  average  sacrifice.  The  amount  which  is  made 
good  to  freight  and  the  amount  of  and  the  value  at  which  the 
freight  is  made  a  contributing  interest  are  outlined  in  the  York- 
Antwerp  Rules.  It  must  be  remembered,  however,  that  if  the 
bill  of  lading  does  not  provide  for  an  adjustment  in  accordance 
with  York-Antwerp  Rules,  the  statement  is  drawn  up  in  accord- 
ance with  the  law  prevailing  at  the  port  of  destination,  unless 
there  is  some  other  custom  in  vogue.  Thus,  in  the  case  of  general 
average  sacrifices  in  connection  with  vessels  from  the  United 
States  bound  for  ports  in  the  West  India  Islands,  it  is  usual 
to  have  the  adjustment  made  in  the  United  States,  in  accordance 
with  the  law  of  the  port  of  departure. 


Sll*  MMxIM'J  IXSUItANCE 

Border-line  Cases.  -J t  will  \>v  found  lluit  tlu;  liiws  of  (ho 
various  nations  dilTiT  niatcriaiiy  in  eortain  respects  from  cacli 
otlicr  and  from  the  rules  promulgated  under  "York-Antwerp 
Ilules  1890."  Enough,  however,  has  been  mentioned  in  the 
foregoing  outline  to  indicate  the  many  and  difficult  problems 
with  which  an  average  adjuster  has  to  deal.  Many  cases  will 
be  on  the  border  line,  where  it  will  be  a  matter  of  opinion  whether 
or  not  the  sacrifices  made  and  the  expenses  incurred  are  in  the 
nature  of  general  average.  The  tlctermination  of  these  (juestions 
to  the  satisfaction  of  all  parties  interested  is  one  requiring  the 
use  of  great  skill  and  tact.  Each  underwriter  who  is  interested 
in  the  venture  and  upon  whom  the  liability  for  the  general  average 
contribution  falls,  carefully  scrutinizes  the  general  average  adjust- 
ment when  issued,  to  determine  whether  or  not  in  his  opinion, 
the  assessments  and  allowances  made  are  just  and  in  accordance 
with  law  or  the  rules  of  practice,  in  view  of  the  statement  of  the 
facts  in  the  case  as  set  forth  at  the  beginning  of  the  general 
average  statement.  Sometimes  years  are  taken  in  the  final  settle- 
ment of  a  case,  during  wdiich  time  tiie  expenses  of  the  average 
adjusters  are  steadily  growing.  Finally,  how-ever,  the  adjustment 
is  completed  and  the  settlements  are  made,  and  in  so  far  as  it  is 
humanly  possible,  exact  justice  is  done  to  all  the  interests 
involved. 


CHAPTER  19 
PARTICULAR  AVERAGE 

Most  Claims  are  for  Partial  Loss. — The  second  class  into  which 
losses  may  be  grouped  is  particular  average.  This  class  includes 
in  number  and,  perhaps  in  actual  financial  loss  suffered,  the 
largest  portion  of  marine  losses.  It  is  the  cumulative  effect  of 
the  vast  number  of  particular  average  claims  presented  to  an 
underwriter  that  determines  success  or  failure  for  his  operations. 
General  average  claims  while  important  and  troublesome  are  as  a 
rule  not  sufficient  in  volume  to  have  a  material  effect  on  the  out- 
come of  underwriting  operations,  the  net  loss  after  adjustment 
as  a  rule  being  a  comparatively  small  percentage  of  the  value  at 
risk.  Likewise,  total  losses,  involving  as  they  do  in  many  cases 
the  loss  of  large  values  are  fortunately  few  when  the  total  number 
of  losses  incurred  in  a  given  period  is  considered.  This  fact  is 
perhaps  best  shown  by  the  low  rates  charged  for  marine  risks 
when  compared  with  the  relatively  high  rates  charged  for  war 
risks,  since  losses  arising  out  of  the  latter  class  of  perils  usually 
result  in  total  or  constructive  total  losses.  It  may  therefore  be 
said  with  considerable  assurance  that  the  field  of  particular 
average  is  where  the  real  struggle  of  marine  insurance  takes 
place. 

Particular  Average  Refers  to  a  Special  Interest. — Phillips 
(Section  1422)  defines  particular  average  as  "a  loss  borne  wholly 
by  the  party  upon  whose  property  it  takes  place,  and  is  so  called 
in  distinction  from  a  general  average  for  which  diverse  parties 
contribute."  A  particular  average  should  be  distinguished  from 
the  total  loss  of  a  part  which  may  occur  when  a  shipment  consists 
of  various  units  as,  for  instance,  when  out  of  a  shipment  of  50 
bars  of  copper  one  is  lost  during  transhipment,  or  out  of  a  lot  of 
50  bales  of  cotton  one  is  totally  destroyed  by  fire.  This  is  not  in 
the  true  sense  a  particular  average  loss  but  is  a  total  loss  of  an  inte- 
gral part  of  the  entire  shipment.  Particular  average  has  reference 
primarily  to  damage  or  loss  which  is  suffered  by  a  particular  in- 

313 


311  MAh'ixK  ixsrh'Axci-: 

(orost  or  l)y  ]):\y\  of  it,  wliidi  destroys  less  than  the  total  value 
of  the  i)arti(;iilar  interest,  or  the  i)art  of  the  particular  interest 
involved.  It  sliould,  however,  be  observed  in  this  connection 
that  a  particular  average  may  attain  such  a  percentage  of  the 
total  value  involved,  that  the  assured  may,  by  exercising  the  right 
of  abandonment,  convert  such  particular  average  into  a  construc- 
tive total  loss.  The  consideration  of  this  phase  of  the  sul)ject 
will  be  deferred  to  the  following  ciiapter.  The  adjustment  of  the 
total  loss  of  part  of  a  shipment  is  comparatively  a  simple  matter. 
If  the  amount  of  insurance  on  that  particular  part  is  ascertained, 
then  the  underwriter's  liability  is  fixed  and  determined  and  he 
pays  this  sum  plus  whatever  charges  may  accrue  in  the  adjusting 
of  the  loss. 

Particular  Charges. — Particular  average  must  be  distinguished 
from  the  particular  charges  which  are  incurred  under  the  sanction 
and  requirement  of  the  Sue  and  Labor  clause,  which  appears  in 
marine  poUcies.  These  charges  may  be  incurred  in  cases  where 
there  is  no  resultant  damage  to  the  property  involved,  the 
expenditures  made  having  resulted  in  the  prevention  of  damage 
to  the  property.  On  the  other  hand,  after  the  incurring  of 
such  charges  the  vessel  or  cargo  may  become  a  total  loss.  Never- 
theless the  underwriter  remains  liable  for  these  charges,  in  such 
cases  paying  more  than  a  total  loss  untler  his  poUcy.  Whether 
or  not  the  property  be  damaged  these  charges  are  not  particular 
average,  but  are  special  charges  recoverable  irrespective  of  the 
question  of  franchise  under  the  "Sue  and  Labor"  clause  and  not 
under  the  "Perils"  clause.  It  must  appear  in  support  of  such 
claim  that  the  expenses  incurred  arose  out  of  an  endeavor  to 
preserve  the  particular  interest  from  a  peril  insured  against  under 
the  policy. 

Comparison  of  Gross  Sound  and  Damaged  Values. — The 
adjustment  of  a  particular  average  caused  by  damage,  however, 
is  more  difficult  and  is  determined  by  ascertaining  what  the  per- 
centage of  depreciation  is  on  the  goods.  This  is  done  by  com- 
paring their  gross  sound  value  with  their  gross  damaged  value 
as  fixed  in  the  open  market.  When  this  precentage  is  found, 
it  is  applied  to  the  insured  amount  under  the  policy  and  settle- 
ment of  loss  is  made  accordingly.  There  is  added  to  this  sum 
whatever  expenses  may  have  been  incurred  in  connection  with 


PARTICULAR  AVERAGE  315 

the  settlement  of  the  loss.  It  will  be  pertinent  at  this  point  to 
direct  attention  again  to  the  fact  that  in  marine  insurance 
unlike  ordinary  fire  insurance,  the  underwriter  is  merely  a  co- 
insurer  of  the  property  with  the  assured  if  the  latter  has  not 
insured  his  property  in  full,  and  a  particular  average  no  matter 
how  small  will  be  adjusted  by  applying  the  percentage  of  deprecia- 
tion to  the  amount  insured  on  the  damaged  property.  If  the 
amount  insured  is  less  than  the  real  value  of  the  goods  the  assured 
will  assume  the  loss  on  the  difference  himself.  If,  on  the  other 
hand,  the  goods  are  insured  for  more  than  their  real  value  the 
assured  will  recover  more  than  the  loss  suffered.  Here  again 
marine  insurance  differs  from  fire  insurance  in  that  under  a  fire 
policy  recovery  under  the  standard  form  of  policy  is  limited 
to  the  actual  loss  suffered.  A  merchant  importing  goods  will 
often  discover,  when  an  adjustment  of  particular  average  is  made, 
that  through  neglect  to  insure  collectible  freight  and  duty  he 
has  become  a  co-insurer  with  his  underwriter  for  a  considerable 
amount.  It  should  be  noted  that  the  marine  underwriter  assumes 
in  full  the  expenses  incident  to  the  adjustment  of  the  loss. 

Comparison  of  Gross  Values  Justified. — In  determining  the 
percentage  of  loss  suffered,  the  values  taken  for  comparison  are 
the  gross  values  at  destination;  that  is,  the  market  values  of  the 
sound  and  damaged  portions  are  compared.  These  values 
include  the  freight,  duty  and  charges  which  have  been  incurred 
in  order  to  place  the  particular  goods  in  that  particular  market. 
If  the  comparison  were  made  on  net  values,  that  is,  the  invoice 
value  of  the  goods  less  the  freight  and  other  charges  accruing,  the 
adjustment  would  work  an  injustice.  As  an  illustration,  a 
shipment  of  cotton  print  goods  imported  from  Liverpool  to  New 
York  may  be  taken.  In  sound  condition,  these  goods  would  have 
a  market  value  of  say  $5,000,  but  in  the  damaged  condition  in 
which  they  arrive  are  worth  only  $2,500  in  the  New  York  market, 
showing  a  depreciation  of  50  percent.  Let  it  be  assumed  that 
in  the  sound  value  of  $5,000,  there  is  an  amount  of  $1,000  which 
represents  the  charges  incurred  in  order  to  place  the  goods  in 
the  New  York  market  such  as  freight,  duty  and  insurance.  This 
$1 ,000  will  accrue  whether  the  goods  arrive  in  a  sound  or  a  damaged 
condition.  If  the  net  values  were  compared  the  sound  value 
would  be  $4,000  ($5,000  less  $1,000)  while  the  damaged  value 


316 


MAh'iM-:  ixsini.wci'J 


net  woulil  only  bo  S1500  ($2500  less  SIOOO  the  cost  of  placing 
the  goods  in  the  niaikct )  thus  showing;  u  depreciation  of  62^^ 
percent,  which  would  he  applied  to  (he  insured  value  in  the  policy. 
Let  it  be  assumed  (hat  (he  floods  are  insured  for  10  percent  over 
(heir  value  or  So500  and  (iie  adjus(nients  under  the  gross  and 
net  basis  would  appear  as  follows: 


1 

CiroBS  batiis 

Not  basis 

10  cases  cotton  print  floods  c.i.f.  in- 
voice value $5000 

Plus  10  percent 500 

$5500 

Insured  value 

$5500 

Insured  subject  to  5  percent  particu- 
lar   average.     Therefore    amount 
necessary  for  claim $275 

Market  value  at  New  York 

Market  value  in  damaged  condition. 

Depreciation 


Insured  value  $5500 

Add  adjusting  charges  incurred,  such 
as  auctioneer's  commission,  ap- 
praiser's fee,  advertising,  etc .    .  .  . 

Total  amount  of  particular  average 
loss 


$5000 
2500 


$4000 
1500 


$2500  or  50%  '  $2500  or  62>^% 
(^50%  =$2750     @62K%=S3437.50 


25 


25.00 


$277.- 


$34(52.50 


Comparison  of  Net  Values  Unfair. — It  will  appear  from  the 
foregoing  illustration  that  an  adjustment  based  on  any  comparison 
other  than  that  of  gross  market  values  is  unfair,  in  that  the 
assured  gains  an  undue  advantage  by  a  comparison  which  shows 
a  percentage  of  depreciation  greater  than  that  actually  suffered. 
The  values  at  the  place  of  destination  of  both  the  s(jund  and 
damaged  goods  are  the  market  values  which  naturally  include 
the  reasonable  expenses  necessary  to  deliver  the  goods  at  such 
place,  but  are,  of  course,  affected  by  the  law  of  supply  and  demand. 


PARTICULAR  AVERAGE  317 

Freight  and  Duty. — In  applying  the  percentage  of  depreciation 
determined  by  the  foregoing  comparison,  the  question  arises  as 
to  what  is  the  insured  value  against  which  the  determined  per- 
centage of  depreciation  is  to  be  applied.  If  there  are  charges  of 
freight  and  duty  accruing  at  the  port  or  place  of  destination 
these  charges  will  not  be  included  in  the  insured  value  unless 
there  is  special  provision  in  the  policy  providing  for  the  insurance 
of  such  amounts.  As  the  determination  of  the  percentage  of 
depreciation  is  made  by  a  comparison  of  values  after  such  charges 
have  been  paid,  it  will  be  manifest  that  a  careless  assured  may 
unwittingly  become  his  own  insurer  for  a  considerable  portion 
of  the  landed  value  of  the  goods.  It  is  customary,  as  already 
indicated  in  a  previous  chapter,  to  insure  the  items  of  collectible 
freight  and  duty.  In  making  the  adjustment  of  particular 
average  in  such  cases  there  is  added  to  the  amount  insured  on 
goods,  the  amount  of  these  two  items,  and  the  percentage  of 
depreciation  is  applied  to  this  gross  amount,  so  that  the  insured 
may  receive  full  indemnity  for  the  loss  incurred. 

Policy  Value  Controls. — It  must  be  borne  in  mind,  how- 
ever, that  both  the  underwriter  and  the  assured  are  bound 
by  the  valuation  expressed  in  the  policy,  whether  this  value 
be  high  or  low  when  compared  with  the  trvie  market  value. 
The  only  time  when  such  a  valuation  can  be  called  into 
question  is  in  the  event  of  an  exceedingly  high  value  where  evi- 
dence appears  indicating  that  the  valuation  was  made  with 
fraudulent  intent. 

Determining  Depreciation  by  Appraisal. — In  the  adjustment  of 
particular  average  losses  on  goods  where  the  amounts  and 
quantities  involved  are  not  large,  it  is  customary  to  arrive  at  the 
percentage  of  loss  by  appraisal  rather  than  by  sale  in  the  open 
market.  If  the  assured  and  the  underwriter's  representative 
can  come  to  an  agreement  regarding  the  percentage  of  loss,  that 
percentage  is  applied  to  the  insured  value  and  the  adjustment  so 
made.  If,  however,  the  assured  and  the  underwriter's  repre- 
sentative cannot  agree,  then  it  is  customary  to  send  the  goods  to 
pubhc  auction  and  have  them  sold  there.  The  expenses  attend- 
ing such  sales  are  a  charge  against  the  underwriter,  as  in  the 
illustration  cited  above  showing  these  charges  added  to  the  loss 
in  the  adjustment. 

22 


:nS  MAh'IM'J  IXSlUi'AiWCE 

Salvage  Losses. — If  no  (nicstion  is  raised  as  lo  the  insured 
value,  so  that  tiic  (juestion  of  co-insurance  on  the  part  of  the 
assured  does  not  enter  into  consideration,  an  underwriter,  when 
poods  are  sent  to  auction,  may  pay  for  them  as  for  a  total  loss, 
and  take  an  assignment  of  the  damaged  goods  receiving  the 
proceeds  of  the  auction  sale  as  salvage  against  this  total  loss. 
In  other  cases  the  assured  receives  the  proceeds  of  the  auction, 
and  the  underwriter  pays  the  difference,  between  the  amount  so 
received  less  the  expenses  incurred  in  the  sale,  and  the  insured 
amount.  So  when  goods  are  sold  at  a  port  short  of  destination, 
adjustment  is  made  either  by  the  payment  of  a  total  loss,  the 
underwriter  taking  the  proceeds,  or  by  the  payment  of  the 
difference  between  the  insured  value  and  the  proceeds.  In  all 
such  cases  the  percentage  of  depreciation  is  not  considered,  and 
the  loss  is  known  as  a  salvage  loss. 

Certificate  of  Damage. — Where  goods  arrive  at  a  foreign  port 
in  a  damaged  condition,  it  is  customary  to  call  in  the  under- 
writer's representative,  if  there  be  one  at  the  port  of  destination, 
in  order  that  he  may  make  an  appraisal  of  the  damaged  propert5\ 
If  the  underwriter  has  no  representative,  a  Lloyd's  surveyor 
or  other  competent  appraiser  will  be  appointed  to  make  a  survey 
and  appraisal  of  the  property.  Where  no  experienced  appraiser 
is  available,  two  reputable  merchants  of  the  town,  familiar 
with  the  class  of  goods  under  consideration,  are  often  called  upon 
to  give  their  opinion  of  the  percentage  of  damage  sustained  by 
the  goods.  A  certificate  setting  forth  the  cause  of  the  damage 
and  the  amount  thereof  is  then  issued  by  the  appraisers,  wdiich 
certificate  is  attached  to  the  other  papers  in  the  case  and  for- 
warded to  the  nearest  point  where  the  certificate  or  policy  of 
insurance  provides  for  payment  of  loss.  Of  course,  if  the  ap- 
praiser called  in  cannot  make  an  amicable  adjustment  of  the 
loss,  it  is  always  possible  to  have  the  damaged  goods  sold  in  the 
open  market,  and  the  loss  suffered  thus  determined.  As  has 
already  been  suggested,  however,  this  method  of  determining  the 
extent  of  loss  is  in  many  places  disastrous  to  the  underwriter  in 
that  through  collusion  there  is  little  competitive  bidding  at  these 
sales. 

Special  Adjustments. — Where  there  are  different  articles  in- 
sured under  a  policy  and  the  separate  values  of  these  different 


PARTICULAR  AVER  ACE  819 

articles  are  ascertainable,  it  is  customary  and  proper  to  adjust 
particular  average  losses  on  each  kind  of  goods  separately, 
determining  the  percentage  of  damage  suffered  by  each  com- 
modity and  applying  this  percentage  to  the  insured  value  of 
that  particular  commodity.  In  the  case  of  goods  which  ordi- 
narily are  subject  to  leakage  or  loss  or  gain  in  weight,  it  is  also 
customaiy  and  proper  to  first  make  allowance  for  such  ordinary 
variation,  adjusting  the  particular  average  on  the  remainder. 

Effect  of  Average  Clauses. — It  will  be  observed  that  much  of 
the  work  of  underwriting  resolves  itself  about  the  question  of 
inserting  clauses  in  the  policy  relating  to  particular  average 
losses.  The  memorandum  clause  sets  forth  in  considerable 
detail  the  percentage  of  damage  which  must  be  attained  on 
various  articles  before  claim  may  be  made  under  the  policy. 
Various  other  clauses  are  used  in  fixing  the  average  franchises  on 
particular  commodities  or  in  changing  the  franchises  which  are 
enumerated  in  the  memorandum  clause.  These  clauses  come 
into  play  when  a  particular  average  adjustment  is  to  be  made. 
The  percentage  of  damage  having  been  determined,  reference  is 
made  to  the  policy  to  see  what  the  franchise  is.  Unless  the 
percentage  of  loss  equals  or  exceeds  the  franchise,  there  is  no 
liability  under  the  policy.  If,  however,  the  percentage  of  loss 
equals  or  exceeds  the  franchise,  the  loss  is  then  paid  in  full.  On 
the  other  hand,  with  an  average  clause  containing  a  deductible 
franchise,  unless  the  percentage  or  amount  of  the  loss  exceeds 
the  deductible  franchise,  there  will  be  no  liability  under  the  policy. 
The  only  particular  average  liability  Avhich  ever  exists  in  such 
cases  is  the  liability  in  excess  of  the  deductible  franchise,  whether 
this  franchise  is  expressed  as  a  percentage  or  as  a  fixed  sum. 

Cause  of  Loss. — The  question  of  franchise,  however,  is  not  the 
only  question  raised  by  average  clauses.  There  is  the  further 
consideration  of  the  cause  of  loss.  As  pointed  out  in  a  previous 
chapter  it  is  not  every  loss  that  is  covered  by  a  policy  of  marine 
insurance,  but  only  those  that  are  the  direct  result  of  the  perils 
enumerated  or  of  others  of  the  same  nature.  The  broad  pro- 
tection granted  by  the  policy  is,  in  many  cases,  modified  by 
average  clauses,  which  limit  recovery,  for  instance,  to  losses 
caused  by  stranding,  sinking,  burning  or  collision.  The  cause 
of  damage  is  ordinarily  the  first  inquiry  in  loss  cases,  and  if  the 


320  MARINE  INSVUANCE 

loss  is  not  occasioned  by  a  peril  insured  against,  no  furtiier  action 
is  taken.  The  cause  of  loss  is  not  always  easy  to  determine,  as 
(•arfj;o  wiiicli  has  been  carried  for  long  distances  may  be  discharged 
in  damaged  condition  without  any  apparent  sea  peril  having 
intervened.  In  such  cases  test  is  usually  made  to  determine 
whether  the  damage  is  the  result  of  fresh  or  salt  water,  and  if 
traces  of  salt  appear  further  search  is  made  for  possible  leaks 
in  the  deck  or  shell  of  the  vessel.  Even  this  loss  may  be  found 
to  be  due  to  fault  on  the  part  of  the  ship,  and  therefore  not 
recoverable  under  the  policy. 

Particular  Average  on  Profits  and  Commissions. — Partial  losses 
on  profits  and  commissions  and  other  interests  which  are  incre- 
ments growing  out  of  the  transactions  involving  the  shipment  of 
the  goods,  are  settled  on  the  same  basis  as  is  the  loss  on  the  goods 
themselves.  The  only  question  involved  in  such  cases  is  whether 
or  not  there  was  a  profit  lost  or  a  commission  lost.  The  solution 
of  this  question  is  not  always  an  easy  one,  as  at  the  time  of  plac- 
ing insurance  on  profits,  an  actual  profit  may  have  existed, 
whereas  at  the  time  of  the  arrival  of  the  goods  market  conditions 
may  have  so  changed  that  the  apparent  profit  has  disappeared. 
If  the  goods  had  arrived  in  a  sound  condition  the  assured  would 
have  had  no  profit  and  the  question  is  naturally  raised,  should 
the  mere  fact  of  the  goods  arriving  in  a  damaged  condition  enable 
the  assured  to  recover  a  loss  under  a  profit  insurance  which 
actually  was  not  suffered.  Some  underw^riters  take  the  position 
that  having  accepted  premium  for  the  insurance  of  a  profit  which 
at  the  time  actually  did  exist,  they  should  respond  in  any  event 
under  such  insurance  if  loss  occurs.  This  position  would  seem  to 
harmonize  with  the  marine  insurance  theory  of  reimbursing  the 
assured  for  loss  on  the  insured  value  even  if  this  amount  exceeds 
the  true  value. 

Particular  Average  on  Hull. — Particular  average  losses  on  hull 
and  machinery  present  many  problems  peculiar  to  this  class  of 
risk.  There  is  a  gradual  and  continual  depreciation  taking  place 
in  the  structure  and  fabric  of  a  vessel,  which  although  perhaps 
imperceptible  is  nevertheless  present.  In  the  event  of  an  acci- 
tlent  occurring  to  the  vessel,  the  question  wall  often  arise  whether 
certain  damage  existing  is  the  result  of  the  casualty  or  of  gradual 
deterioration    known    as    "wear    and   tear."     Such   loss,   while 


PARTICULAR  AVERAGE  321 

undoubtedly  a  partial  loss  of  the  vessel  is  not  particular  average, 
at  least  in  so  far  as  the  perils  insured  against  are  concerned.  In 
many  cases  it  is  necessary  in  effecting  repairs  to  remove  portions 
of  the  fabric  of  the  ship  replacing  the  old  with  new  material. 
Since  it  is  not  always  possible  to  separate  the  "wear  and  tear" 
from  the  casualty  damage,  the  custom  has  grown  as  already  ex- 
plained of  deducting  "thirds  new  for  old"  to  offset  the  replace- 
ment of  "wear  and  tear"  deterioration.  It  is  important  to 
understand  how  and  where  in  the  adjustment  of  particular  aver- 
age on  hull,  credit  is  taken  for  this  "one-third"  or  such  modified 
percentage  as  may  have  been  named  in  the  policy.  It  will  be 
observed  that  the  old  material  taken  out  of  the  vessel  is  of  some 
value  as' scrap.  This  value  is  ordinarily  determined  by  selling 
the  old  material.  Question  then  arises  as  to  whether  or  not 
credit  for  this  old  material  should  be  taken  in  the  adjustment 
before  or  after  the  deduction  of  one-third  is  made.  Naturally 
it  will  be  to  the  advantage  of  the  assured  if  the  deduction  is  first 
made  and  the  "  thirds"  deducted  from  the  remainder.  However, 
this  is  not  the  method  ordinarily  followed,  the  prevailing  rule 
being  that  the  "thirds"  are  first  deducted,  credit  then  being  taken 
for  the  value  of  the  old  material.  The  final  result  is  the  amount 
for  which  the  underwriters  must  respond,  each  in  proportion  to 
the  percentage  of  insured  value  for  which  he  is  liable. 

Apportiomnent  of  Expenses. — It  is  not  at  all  unusual  to  find 
that  in  cases  where  a  vessel  is  sent  to  the  repair  yard  to  restore 
damage  caused  by  perils  insured  against,  that  the  owners  will 
take  advantage  of  the  opportunity  to  make  repairs  or  alterations 
which  are  solely  for  the  owner's  account  and  in  which  the  under- 
writers are  not  interested.  Certain  charges,  as  for  dry  docking, 
are,  of  course,  of  mutual  benefit  to  both  underwriters  and  owners 
in  such  cases  and  some  fair  apportionment  of  these  expenses 
should  be  made.  Where,  however,  the  repair  work  being  done 
is  solely  for  underwriters'  account,  the  necessary  expenses  inci- 
dental to  the  repairs  are  included  in  the  adjustment  and  paid  by 
the  underwriters. 

Temporary  Repairs. — It  frequently  happens  that  temporary 
repairs  are  made  at  a  port  of  refuge,  either  because  it  is  not 
practicable  to  effect  permanent  repairs,  or  because  an  ultimate 
saving  can  be  effected  by  making  sufficient  repairs  to  enable  the 


322  MAlilNK  IXSUUAXCE 

vessel  to  proceed  under  a  certificate  of  seaworthiness  to  a  port 
whore  tlie  permanent  repairs  can  be  readily'  and  mcjie  cheaply 
made.  In  such  ctises  the  cost  of  the  temporary  repairs  arc  borne 
by  the  underwriters,  it  being  assumed  that  such  repairs  have 
been  reasonably  and  prudently  made.  Where,  however,  the 
owner  desires  tempoiary  rei)airs  made  solely  because  of  the 
delay  involved  in  ol)taining  new  i)arts,  or  because  of  the  difficulty 
of  obtaining  the  use  of  a  dry  dock  at  the  port  where  the  vessel  then 
is,  there  would  seem  to  be  no  reason  why  the  underwriters  should 
be  interested  in  the  cost  of  such  temporary  repairs.  The  under- 
writers on  hull  are  not  interested  primarily  in  the  prompt  repair 
of  damage;  their  obligation  is  merely  to  make  good  to  the  assured 
damage  suffered,  or  to  repair  for  his  account  such  danuige  with 
reasonable  diligence.  If  the  owner,  in  order  to  obtain  (juickly 
the  use  of  his  vessel,  desires  to  incur  unusual  expense  to  effect 
such  end,  these  cxtraordinarj^  expense  must  be  borne  solely 
by  him. 

Valuation  of  Hulls. — Attention  has  already  been  directed  to 
the  importance  of  inserting  a  fair  valuat  ion  for  vessels  in  policies 
covering  particular  average  losses  on  hull  and  machinery.  The 
necessity  for  this  becomes  apparent  in  tiie  adjustment  of  particular 
average  claims.  An  underwriter  being  l)ound  by  the  valuation 
expressed  in  the  policy,  if  made  in  good  faith,  wdiether  this  valua- 
tion be  high  or  low,  becomes  responsible  for  the  percentage  of 
particular  average  which  the  amount  insured  under  his  policy 
bears  to  the  value  of  the  vessel  as  stated  therein,  subject,  of  course, 
to  the  average  franchises  and  other  conditions  of  the  policy. 
Thus  on  a  low-valued  vessel  he  assumes  a  relatively  greater  pro- 
portion of  loss  than  in  the  case  of  a  high-valued  vessel. 

Cause  of  Damage  to  Hulls. — As  in  the  case  of  particular 
average  on  cargo,  the  cause  of  loss  is  a  subject  of  pertinent  inquiry 
in  connection  with  claims  on  hull  and  machinery.  In  many 
instances  the  cause  of  loss  is  apparent,  l)ut  in  others,  especially 
in  connection  with  steamers  or  other  mechanically  propelled 
vessels,  many  and  serious  losses  occur  without  any  apparent  or 
unusual  conditions  having  been  encountered  during  the  voyage. 
Propeller  blades  will  be  lost,  stern  frames  will  be  fractured, 
and  accidents  will  overtake  the  machinery  without  any  usual 
strain  being  noticed.     In  such  cases,  it  often  ])ecomcs  difficult  to 


PARTICULAR  AVERAGE  323 

determine  whether  or  not  the  damage  is  due  to  latent  defect  or  to 
the  action  of  some  external  force.  Obviously,  if  the  policy,  as  is 
usual,  contains  the  "Inchmaree"  clause  the  question  is  of  less 
importance,  but  even  when  this  clause  is  used  many  perplex- 
ing problems  arise  with  respect  to  particular  average  claims. 

Partial  Loss  of  Freight. — Partial  losses  on  freight  present  a 
more  difficult  problem,  freight  not  being  a  tangible  interest,  but 
one  which  is  dependent  on  both  the  cargo  and  the  ship.  It 
therefore  follows  that  a  partial  loss  of  freight  may  result  because 
of  loss  to  ship  or  cargo  or  to  both.  Partial  loss  on  this  interest 
can  be  determined  only  by  reference  to  the  goods  and  the  vessel. 
It  will  be  interesting  to  observe  a  few  of  the  ways  in  which  a 
total  loss  of  part  or  a  particular  average  may  arise  on  the  interest 
of  freight.  In  a  policy  on  freight  where  the  freight  is  at  the  risk 
of  the  ship  and  the  amount  insured  under  the  policy  is  divisible 
into  parts,  as,  for  instance,  in  the  case  of  a  policy  covering  a 
voyage  consisting  of  two  or  more  sections,  each  of  which  is 
severable  and  the  amount  of  freight  applicable  to  each  section  is 
determinable,  if  in  this  case  the  ship  is  lost  after  one  or  more 
sections  of  the  voyage  are  completed,  then  there  will  be  a  total 
loss  of  part  of  the  freight  equalling  the  amount  of  the  unearned 
portion  of  the  freight  contract. 

Collectible  Freight. — If  the  bill  of  lading  freight  is  collectible 
at  destination  and  through  perils  insured  against  part  of  the 
cargo  is  lost,  or  a  portion  of  the  cargo,  because  of  damage  cannot 
be  delivered  in  specie  and  the  vessel  is  thus  prevented  from  earn- 
ing the  freight  on  this  particular  portion  of  the  cargo,  a  total  loss 
of  part  of  the  freight  will  result.  Where  through  the  occurrence 
of  perils  insured  against  the  voyage  is  broken  up  by  mutual 
consent  short  of  the  port  or  place  of  destination  and  freight  pro 
rata  itineris  peracti  is  paid,  the  difference  between  the  amount  so 
paid  and  the  gross  freight  at  risk  is  a  particular  average  on  freight. 

Substitution  of  Vessel  or  Cargo. — If,  in  the  event  of  a  vessel 
making  a  port  of  refuge  and  being  unable  to  prosecute  the  voyage, 
another  vessel  is  obtainable  to  complete  the  voyage  at  a  less  cost 
than  the  gross  freight  at  risk,  the  vessel  owner  is  obligated,  if 
possi})le,  to  make  such  substitution.  In  such  a  case,  there  is  a 
particular  average  on  freight  equal  to  the  cost  of  hiring  the  new 
vessel.     A  freight  loss  of  this  character  is  known  as  a  salvage  loss. 


324  MMilSE  ISSVRANCE 

When  the  whole  cargo  is  lost  without  the  loss  of  the  vessel  itself 
and  another  cargo  is  taken  at  the  same  port,  intended  for  the 
original  destination,  the  loss,  if  any,  on  the  freight  is  again  a 
salvage  loss  and  is  the  difference  between  the  original  freight  and 
the  new  freight.  This  rule  will  liold  good  only  in  case  the  sub- 
stituted cargo  is  to  be  carried  to  the  same  port  as  was  the  original 
cargo,  otherwise  there  will  be  an  abandonment  of  the  voyage. 
The  suljstitution  of  an  entirely  new  voyage  will  result  in  the  total 
loss  of  freight  on  the  oi'igiiial  cai'go. 

Freight  Not  Always  Involved  in  Damage  to  Ship  or  Cargo. — 
While  the  determination  of  a  partial  loss  of  freight  is  dependent 
on  what  happens  to  the  ship  or  cargo,  it  does  not  follow  that 
because  there  is  a  particular  average  loss  on  vessel  or  cargo,  that 
there  will  necessarily  be  a  particular  average  loss  on  freight. 
In  fact,  the  reverse  is  more  often  true.  Many  partial  losses  will 
be  suffered  by  cargo,  where  the  freight  will  in  no  wise  be  affected 
and  the  same  is  true  in  the  case  of  particular  average  on  hull. 
A  partial  loss  on  freight  is  more  apt  to  result  in  connection  with 
the  total  loss  of  a  part  of  the  cargo,  or  in  connection  with  a 
partial  or  total  loss  affecting  the  vessel  which  results  in  the 
breaking  up  of  the  voyage.  Cargo  delivered  in  a  damaged  con- 
dition but  still  in  specie,  of  course,  must  pay  full  freight  to  the  vessel 
and  consequently  no  particular  average  on  freight  accompanies 
the  particular  average  on  cargo.  The  freight  so  paid  as  in  the 
case  of  prepaid  or  guaranteed  freight  becomes  part  of  the  value  of 
the  goods  and  as  previously  indicated,  if  insured  by  the  cargo 
owner,  enters  into  the  adjustment  of  the  particular  average  on 
cargo.  In  the  event  of  disaster  the  master  is  bound  to  use 
every  reasonable  effort  to  carry  cargo  forward  to  destination 
either  in  his  own  vessel,  or  if  procurable  in  a  substituted  vessel, 
and  if  he,  through  neglect,  fails  to  do  this  and  there  results  a 
particular  average  on  freight,  the  underwriter  on  freight  will 
not  be  lialjle  for  such  loss. 

Protest  of  Master.- — In  order  to  establish  a  valid  claim  under 
a  policy  of  marine  insurance  in  its  ordinary  form,  it  is  necessary 
to  prove  that  some  fortuitous  accident  has  overtaken  the  vessel, 
or  that  the  damage  suffered  has  resulted  from  causes  beyond 
the  control  of  the  master  or  the  owner  of  the  cargo.  Since 
the  underwriter  assumes  liability   only  for  damages  occurring 


PARTICULAR  AVERAGE  325 

through  the  fortuitous  causes  enumerated  specifically  in  the 
policy  and  from  other  causes  of  like  nature,  and  not  all  damage 
irrespective  of  cause,  documentary  evidence  showing  the  occur- 
rence of  such  peril  or  of  the  existence  of  fortuitous  circumstances 
which  might  readily  have  caused  the  damage  may  be  demanded 
by  the  underwriter.  Such  evidence  is  ordinarily  furnished 
in  one  of  two  ways.  Reference  is  made  either  to  the  log  book 
of  the  vessel  showing  that  accident  overtook  it,  or  that  heavy 
weather  or  other  fortuitous  circumstances  were  encountered 
during  the  voyage,  or  preferably  the  evidence  is  set  forth  in  a 
document  called  the  master's  protest.  In  this  document,  the 
master  of  the  vessel,  under  oath,  sets  forth  the  events  of  the 
voyage,  stating  particularly  the  circumstances  under  which  the 
damage  suffered  is  alleged  to  have  occurred  or  might  have  oc- 
cured  and  protesting  against  the  master  or  the  vessel  being  held 
responsible  for  such  loss.  This  document  serves  a  double  purpose 
in  establishing  the  facts  of  the  casualty  and  also  in  relieving  the 
vessel  'prima  facie  from  liability  for  the  damage. 

Proofs  of  Loss.— It  is  necessary  also  in  order  to  establish  a 
valid  claim  for  loss  on  cargo  that  certain  documents  be  produced, 
showing  that  the  right  to  receive  payment  of  loss  on  the  property 
is  vested  in  the  claimant.  The  documents  necessary  to  so  es- 
tablish the  claim  are  the  following,  viz. : 

1.  The  bill  of  lading  for  the  goods,  which  is  the  ship's  receipt  showing 
that  the  goods  in  question  were  actually  on  board  the  vessel  which  has 
met  with  disaster  or  on  which  damage  is  alleged  to  have  overtaken  the 
goods.  Owing  to  the  fact  that  short  shipments  frequently  occur  after 
the  bill  of  lading  has  been  issued,  it  is  always  prudent  to  have  the 
transportation  company  confirm  that  the  goods  were  actually  laden  on 
the  vessel  named  in  the  bill  of  lading. 

2.  The  invoice  must  be  produced,  which  shows  the  value  of  the  goods 
and  the  accruing  charges.  From  this  document  the  underwriter  is 
enabled  to  determine  whether  or  not  the  amount  reported  for  insurance 
is  the  sum  for  which  he  assumes  responsibility  under  the  policy. 

3.  The  insurance  policy  or  the  certificate  of  insurance,  if  one  has 
been  issued,  must  be  produced.  This  document  proves  the  insurance 
and  also  establishes  to  whom  payment  of  loss  is  to  be  made. 

Duplicate  Documents. — If  the  insurance  certificate  has  been 
issuctl  in  duplicate  both  documents  should  be  surrendered.     If 


:rj(;  mauiwi-:  insurance 

111  is  is  not  |)ractical)lc,  iiuleniiiity  may  be  taken  against  the  pos- 
sil)ilily  of  other  claimants  appearing  with  duplicate  documents. 
Those  (U>cumonts  l)(>ing  negotiahlo  merely  by  endorsem(>nt,  the 
necessity  for  this  precaution  will  l)e  apparent.  If  a  survey 
and  appraisal  of  the  damaged  property  has  been  made  the 
certificate  of  the  surveyor  and  appraiser  will  also  accompany 
tlie  loss  documents. 

Certificate  of  Enrollment. — In  the  case  of  a  total  loss  on  hull, 
a  further  document  is  reciuired,  known  as  the  certificate  of 
enrollment,  proving  by  governmental  document,  tlu;  ownership 
of  the  vessel.  It  is  also  proper  in  the  case  of  loss  on  freight  to 
demand  the  production  of  the  freight  list  or  the  charter  party, 
in  order  to  prove  the  amount  of  freight  which  was  at  risk. 


CHAPTER  20 

TOTAL     AND     CONSTRUCTIVE    TOTAL    LOSSES.     WAR 

LOSSES 

Definition. — A  total  loss  is  defined  by  Phillips,  Section  1485 
and  1486  as  one  wherein  the  subject  of  an  insurance,  "by  the 
perils  insured  against,  is  destroyed  or  so  injured  as  to  be  of  trifling 
or  no  value  to  the  assured  for  the  purposes  and  uses  for  which  it 
was  intended,  or  is  taken  out  of  the  possession  or  control  of  the 
assured,  whereby  he  is  deprived  of  it;  or  where  the  voyage  or 
adventure  for  which  the  insurance  is  made  is  otherwise  broken 
up  by  the  perils  insured  against.  In  a  total  loss  the  assured 
IS  entitled  to  recover  from  the  underwriter  the  whole  amount 
insured  by  the  policy  on  the  subject  so  lost." 

Constructive  Total  Loss. — A  constructive  or  technical  total 
loss  on  the  other  hand  is  one  in  which  the  property  has  not 
actually  become  a  total  loss,  but  has  been  so  injured  that  the 
part  or  remnant  remaining  is  impossible  of  repair  at  a  cost  less 
than  the  value  of  the  repau-ed  subject,  or  if  not  badly  injured 
is  in  a  position  of  such  difficulty  from  the  viewpoint  of  salvage, 
that  the  cost  of  recovering  it  would  equal  or  exceed  its  value 
when  recovered.  A  technical  total  loss  may  result,  however, 
by  agreement  or  by  imphcation  of  law  when  property  is  damaged 
beyond  a  fixed  percentage  of  its  value. 

Adjustment  May  be  Simple.— In  many  cases  the  adjustment 
of  a  total  loss  claim  is  a  simple  matter,  as  where  a  vessel  is  in 
collision  and  sunk  on  the  high  seas,  with  no  part  of  her  value  re- 
maining and  with  no  possibility  of  recovery  of  the  vessel  through 
the  exercise  of  salvage  operations.  While  such  cases  are  more 
or  less  frequent,  it  is  quite  often  the  case  that  a  disaster  overtak- 
ing the  vessel  wdll  present  the  question  as  to  whether  or  not  there 
is  such  a  destruction  as  will  warrant  the  assumption  of  total  loss 
and  settlement  on  that  basis. 

Assured  Must  Endeavor  to  Preserve  Property. — It  is  the  duty 
of  an  assured  by  implication  of  law  and  })y  contract  under  the 

327 


:r2S  MAh'f.M-:  rxsrirwcK 

Sue  and  Labor  clause  to  use  the  utmost  endeavor  in  tlie  event 
of  casualty  overtaking  his  property  to  preserve  it  and  to  prevent 
its  becoming  absolutely  wortidcss.  The  measure  of  duty  that  is 
placed  U{)on  him  in  this  resi>ect,  is  that  measure  which  a  prudent 
uninsured  owner  would  exercise  under  similar  circumstances. 
The  mere  fact  that  the  assured  has  an  insurance  policy  under 
which  he  may  obtain  indemnity  for  his  loss  is  no  valid  reason  why 
he  should  not  exercise  the  same  care  and  diligence  in  preserving 
and  recovering  the  property  as  would  be  the  case  were  the  loss  to 
fall  directly  on  him.  This  point  of  view  is  too  often  over- 
looked by  the  assured,  with  unfortunate  consequences  to  the 
underwriter.  It  is  primarily  for  this  purpose  that  the  Sue  and 
Labor  clause  is  inserted  in  policies  thus  converting  into  an  express 
obligation  under  the  policy  that  which  existed  as  a  duty  implied 
l)y  law,  and  requiring  that  the  assured  use  due  diligence  in  taking 
measures  for  the  saving  and  preserving  of  the  damaged  property. 

When  Is  a  Thing  Lost? — The  question  arises  in  many  cases 
whether  or  not  a  thing  is  lost.  A  vessel  may  strike  on  a  rock, 
and  filling  with  water  sink,  but  in  such  a  position  as  to  make 
easy  and  comparatively  inexpensive,  operations  for  the  raising 
and  repair  of  the  vessel.  In  such  case  it  cannot  be  said  that  the 
vessel  is  lost.  Or  again,  a  ship  may  be  on  fire  and  partially  burnt. 
In  order  to  extinguish  the  fire,  the  vessel  may  be  flooded  to  such 
an  extent  that  it  settles  on  the  botton,  but  the  cost  of  pumping 
out  and  floating  the  vessel  and  repaii'ing  the  fire  and  water 
damage  may  represent  but  a  small  percentage  of  the  total  value 
saved.  In  such  a  case  it  cannot  be  said  that  the  vessel  is  a  total 
loss.  The  same  rule  applies  to  cargo.  However,  whether  or  not 
under  similar  circumstance  damage  to  goods  will  result  in  a 
total  loss  depends  in  large  degree  on  whether  or  not  the  cargo  is 
jjerishable.  A  vessel,  slightly  injured  in  collision,  but  sunk, 
may  result  in  the  total  destruction  of  the  cargo  if  it  be  susceptible 
to  rapid  disintegration  by  water  as  in  the  case  of  a  sugar  cargo. 
On  the  other  hand,  a  vessel  so  badly  injured  by  colhsion  or  so 
badly  ashore  as  to  make  salvage  operations  on  the  vessel  imprac- 
tical may  result  in  but  little  injury  or  expense  in  connection  with 
a  non-perishable  cargo  such  as  pig  copper. 

When  Does  a  Constructive  Total  Loss  Occur? — The  fact  re- 
mains, however,  that  a  vessel  or  its  cargo  may  not  be  an  actual 


TOTAL  LOSSES  329 

total  loss  and  j^et  be  so  badly  damaged  or  in  such  position  of  diffi- 
culty that  the  cost  of  repairing  or  the  cost  of  extricating  the  vessel 
or  the  cargo  from  its  position,  will  be  so  great  that  a  prudent  unin- 
sured owner  would  not  undertake  any  salvage  operations  on  the 
damaged  vessel  or  its  cargo.  In  such  a  case  he  would  conclude 
that  the  cost  of  extricating  the  vessel  and  cargo  from  their  difficult 
position  and  of  making  the  necessary  repairs  wdiich  w^ould  restore 
the  vessel  to  her  former  condition  and  the  cost  of  reconditioning 
the  cargo  to  make  it  salable,  would  exceed  the  cost  of  the  vessel 
and  cargo  when  so  restored.  If  this  state  of  facts  appears,  it  is 
proper  for  the  assured  to  tender  abandonment  of  the  vessel  and 
cargo  to  the  underwriters  and  claim  for  a  total  loss  under  the 
name  of  a  Constructive  or  Technical  Total  Loss.  It  will  be 
evident  that  in  many  cases  the  conclusion  arrived  at  is  based  on 
supposition  rather  than  on  fact,  but  if  the  conclusion  reached 
as  to  constructive  total  loss  is  a  reasonable  one  in  the  light  of 
existing  facts,  even  though  subsequent  events  prove  this  conclu- 
sion to  have  been  erroneous,  the  parties  will  be  bound  by  the 
judgment  reached  and  mutually  accepted. 

American  and  English  Practice  Differs. — One  of  the  greatest 
differences  between  marine  insurance  practice  in  this  country  and 
in  England  is  found  in  connection  with  the  subject  of  construct- 
ive total  loss.  Under  the  English  practice,  unless  a  vessel  is 
so  badly  damaged  that  the  cost  of  salving  and  repairing  it  would 
equal  or  exceed  the  value  of  the  vessel  when  repaired,  the  insured 
value  being  assumed  to  be  the  repaired  value,  no  claim  can  be 
made  for  a  constructive  total  loss.  On  the  other  hand,  a  rule 
has  been  in  force  in  the  United  States  which  is  more  favorable  to 
the  assured  and  provides  that  in  the  event  of  a  vessel  being 
damaged  to  such  an  extent  that  the  cost  of  salvage  and  of 
repair  will  exceed  fifty  percent  (50  %)  of  the  repaired  value, 
circumstances  exist  under  which  the  assured  ma}'-  claim  as  for 
a  constructive  total  loss.  The  theory  of  constructive  total  loss 
applies  both  in  England  and  the  United  States  not  only  to 
damaged  hulls,  but  also  to  damaged  cargo  or  loss  of  freight.  In 
connection  with  the  insurance  of  hulls  since  the  adoption  of  stand- 
ard forms  for  use  both  in  the  English  and  American  markets, 
the  English  custom  has  gained  ground  and  a  clause  to  this  effect 
now  appears  in  most  hull  forms  used  in  America.     The  English 


'SW  MAh'I.\  K  I A  Sl'R.WC  /-; 

theory  scorns  the  more  logical  as  a  basis  for  uiKh-rwiitiiig,  the 
desire  of  uiuierwritcrs  being  to  discourage  rather  than  to  invite 
al)an(hjnnicnt. 

Abandonment. — TJie  sul)jcct  of  abandonment  which  arises 
in  connection  with  constructive  total  loss  is  one  of  great  difficulty 
and  presents  many  perplexing  problems  to  both  underwriter 
and  assured.  The  practice  is  an  old  one  and  there  is  no  definite 
set  of  rules  governing  the  tender  or  acceptance  of  abandonment. 
In  the  case  of  an  absolute  total  loss,  where  there  is  no  possibility 
of  saving  or  of  repairing  the  vessel,  it  is  not  necessary  for  an 
assured  to  abandon  in  order  to  clahn  a  total  loss.  It  is  customary, 
however,  for  underwriters  to  take  assignment  of  the  property 
on  payment  of  the  total  loss.  Wliere  there  is  not  an  absolute 
total  loss,  if  the  assured  would  exercise  the  right  to  claim  from 
his  underwriters,  as  for  a  constructive  total  loss,  he  must  tender 
abandonment  to  his  underwriters. 

Tender  of  Abandonment. — In  this  tender  the  assured  must  set 
forth  the  facts  upon  which  he  bases  his  allegation  that  the  vessel 
is  in  such  condition  that  a  prudent  uninsured  owner  would  not 
deem  it  wise  to  undertake  to  save  and  repair  the  vessel.  If  the 
interest  insured  be  freight  or  cargo,  a  similar  condition  must  be 
shown  to  exist.  No  special  form  of  abandonment  is  reciuired 
and  no  special  form  of  acceptance  by  the  underwriter  is  provided. 
When  abandonment  is  tendered  and  accepted,  the  underwriter 
pays  the  full  insured  value  and  takes  the  remnant  of  the  propeity 
as  it  is,  subject  to  whatever  liens  may  exist  against  it.  The 
mere  acceptance  of  abandonment  by  the  underwriter,  however, 
does  not  make  it  incumbent  upon  him  to  accept  the  ownership 
of  the  wreck  or  remnant  of  the  property,  as  such  acceptance 
might  put  him  in  possession  of  property  of  less  than  no  value, 
that  is,  property  so  burdened  with  liens  as  to  be  a  liability  rather 
than  an  asset. 

Validity  of  Abandonment. — The  vaUdity  of  an  abandonment 
depends  upon  the  facts  existing  when  it  is  made.  If,  on  the 
basis  of  those  facts,  the  tender  of  abandonment  is  accepted  the 
relation  of  the  assured  and  underwriter  are  definitely  established. 
Subsequent  improvement  in  the  conditions  surrounding  the 
abandoned  subject  will  not  affect  the  validity  of  the  abandon- 
ment, nevertheless  by  mutual  agreement  the  abandonment  may 


TOTAL  LOSSES  331 

be  withdrawn  and  the  former  relation  existing  between  assured 
and  underwriter  reestabhshed.  If  the  notice  of  abandonment  as 
given  to  the  underwriters  sets  forth  facts  which  constitute  a  valid 
reason  for  the  acceptance  of  the  tender,  but  it  is  later  proved  that 
the  facts  were  false  and  intended  to  deceive,  the  abandonment, 
of  course,  will  not  be  effective  as  it  will  be  tainted  with  fraud  and 
be  void.  Abandonment  once  made  by  the  assured  and  accepted 
by  the  underwriter  is  irrevocable  without  the  consent  of  the 
underwriters. 

Tender  Must  be  Promptly  Made. — An  assured  must  not  un- 
duly delay  tendering  abandonment  to  underwriters.  He  must 
act  with  due  diligence,  so  that  if  he  is  within  his  legal  rights  in 
making  the  abandonment  and  does  not  attempt  to  make  any 
efforts  to  save  the  property,  the  underwriter  will  have  the  right 
to  take  possession  of  the  property  and  do  what  he  can  to  minim- 
ize the  loss.  It  will  have  been  observed  in  connection  with  the 
Sue  and  Labor  clause  that  while  the  assured  is  required  to  take 
measures  for  the  preservation  of  the  property,  and  the  under- 
writer is  permitted  to  intervene  in  order  to  safeguard  the  prop- 
erty, such  acts  on  the  part  of  either  assured  or  underwriter  are 
not  to  be  considered  as  a  waiver  or  an  acceptance  of  abandoimient. 
Underwriters  may  always  refuse  to  accept  abandonment.  As 
soon  as  a  case  appears  hopeless,  it  is  the  usual  practice  for  the 
owner  to  tender  and  the  underwriter  to  refuse  abandonment. 
The  rights  of  both  parties  having  thus  been  preserved,  the 
assured  continues  to  seek  means  to  recover  the  property  under 
the  requirements  of  the  8ue  and  Labor  clause,  until  the  absolute 
proof  of  the  constructive  total  loss  of  the  property  can  be 
demonstrated. 

Acceptance  of  Abandonment. — It  is  not  necessary  for  an  under- 
writer to  indicate  his  acceptance  or  dechnation  of  a  tender  of 
abandonment.  However,  delay  in  declining  the  tender,  if  un- 
duly prolonged,  may  be  considered  as  an  acceptance.  A  tender 
may  also  be  withdrawn  at  any  tune  prior  to  acceptance.  If  the 
tender  is  accepted  by  the  underwriter,  it  must  be  by  persons 
whose  measure  of  authority  gives  them  the  right  to  make  such 
acceptance.  It  does  not  follow  that  because  a  payment  is  made 
on  account  after  tender  of  abandonment  that  the  tender  has 
been  accepted.     An  acceptance  of  the  tender  is  an  implied  admis- 


332  MAL'IXK  INSURANCE 

sion  of  a  right  to  make  ahandonincnt.  It  will  also  be  observed 
that  an  abandoimuMit  made  and  accepted  by  a  group  of  under- 
writers, as  is  frequently  tlie  case  in  luill  insurance,  does  not  make 
the  uiidciwiiters  hablc  as  joint  owners,  but  merely  as  individual 
owners  of  shares  in  tlie  salvage.  If  the  underwriters  upon  the 
acceptance  of  abandonment  do  not  wish  to  receive  the  salvage, 
they  must  give  immediate  notice  to  the  assured  of  their  disclaimer 
of  such  transfer. 

Efifect  of  Acceptance. — The  effect  of  the  acceptance  of  abandon- 
ment by  the  underwriter  and  the  transference  to  him  of  the  wreck 
or  salvage  is  to  put  the  acts  of  persons,  in  whose  care  llie  property 
may  be,  at  the  risk  of  the  underwriter.  The  assured  himself 
becomes  the  trustee  or  agent  of  the  underwriter  or  if  there  be 
several  underwriters  he  becomes  trustee  or  agent  severally  but 
not  jointly.  In  the  same  manner  the  agent  of  the  assured,  for 
instance,  the  master  of  the  vessel  in  the  case  of  a  hull  abandon- 
ment, becomes  the  agent  of  the  underwriters.  The  under- 
w'riters  after  acceptance,  become  to  all  intents  and  purposes  the 
owners  of  the  salvage,  gaining  all  the  benefits  which  such  owner- 
ship carries  with  it,  and  incurring  all  the  burdens,  to  the  extent 
of  their  respective  shares,  which  such  ownership  implies. 

Abandormient  May  be  Deferred  by  Mutual  Consent. — It  is 
also  proper  for  the  assured  and  the  underwriter  after  an  accident 
has  occurred,  by  mutual  consent,  to  leave  the  question  of  abandon- 
ment in  abeyance,  the  rights  of  neither  to  be  affected  by  this 
arrangement.  Whether  or  not  the  abandonment  is  finally  made 
will  depend  upon  the  ultimate  results  of  the  disaster.  The  rule 
of  abandonment  is  one  which  works  to  the  advantage  of  the 
assured  to  the  extent  that  it  is  optional  with  him  whether  or  not 
he  abandon.  An  underwriter  cannot  compel  an  assured  to 
abandon.  In  a  recent  case,  that  of  the  Steamer  Congress, 
whei'e  the  vessel  was  so  badly  damaged  by  fire  as  to  permit  a 
valid  claim  for  constructive  total  loss,  owing  to  market  condi- 
tions, the  value  of  the  hull  in  its  burned  condition  was  worth 
more  than  the  value  of  the  vessel  in  the  policies  of  insurance. 
Had  the  assured  tendered  abandonment  and  had  the  tender  been 
accepted  by  the  underwriters,  they  w-ould  have  paid  for  a  total 
loss,  but  under  the  abandonment  would  have  obtained  title  to 
all  the  salvage  remaining  which  in  this  particular  case  was  worth 


TOTAL  LOSSES  333 

more,  as  the  event  proved,  than  the  insured  value  of  the  vessel. 
The  assured  being  unwilling  under  the  circumstances  to  abandon, 
an  arrangement  was  made  Avith  the  underwriters  by  which  a 
partial  loss  of  ninety-five  percent  was  paid  and  no  abandonment 
made.  The  owners  kept  the  remnant  of  their  vessel,  which  they 
sold  at  a  price  exceeding  the  insured  value  of  the  whole.  Repairs 
were  made  by  the  new  owners  and  the  vessel  then  was  worth 
consi{lera])ly  more  than  twice  the  original  insured  value. 

Assignment  Dates  from  Time  of  Loss. — It  will  be  observed 
that  in  an  abandonment  case  the  assignment  dates  from  the  time 
of  loss  and  the  only  property  transferred  by  such  assignment  is 
the  property  that  existed  at  the  time  of  the  loss,  subject  to  its 
encumbrances.  The  property  received  by  an  underwriter  upon 
the  acceptance  of  abandonment  is  called  salvage.  This  word  is 
also  used  to  describe  the  amount  of  money  which  is  awarded  to 
a  voluntary  salvor  or  to  one  who,  under  contract,  undertakes 
salvage  operations.     These  two  meanings  should  not  be  confused. 

Abandonment  of  Vessel  Involves  Freight. — In  connection  with 
the  subject  of  abandonment  one  peculiar  feature  exists  which 
presents  a  measure  of  injustice  that  has  been  corrected  by  a  clause 
inserted  in  most  hull  poHcies.  An  underwriter  accepting  the 
abandonment  of  a  vessel  becomes  to  all  intents  and  purposes  its 
owner  and  as  such  is  entitled  to  any  freight  earnings  which  may 
accrue  after  the  date  of  the  accident,  if  the  vessel  is  repaired  and 
enabled  to  proceed  to  her  destination.  The  result  of  this  is,  that 
the  underwriter  on  the  freight  having  an  abandonment  made  to 
him  at  the  same  time  and  accepting  abandonment  has  no  salvage 
whatever,  as  the  freight  earned  goes  to  the  underwriter  on  the 
ship.  This  injustice  has  been  corrected  in  most  cases  by  inserting 
in  policies  on  hull  a  clause  reading: 

'In  the  event  of  total  or  constructive  total  loss,  no  claim  to  be  made 
by  the  underwriters  for  freight,  whether  notice  of  abandonment  has  been 
given  or  not." 

No  Abandonment  if  Loss  Not  Due  to  Insured  Peril. — It  will  be 
evident  that  no  abandonment  can  be  tendered  under  a  policy 
containing  a  "Free  of  Particular  Average"  clause  if  none  of  the 
casualties  enumerated  in  such  clause  has  occurred.  For  instance, 
a  cargo  might  be  insured  under  the  usual  "Free  of  Particular 

23 


:\'^^  ^f^rfI^'E  INSdRANCE 

Av(M-:ij^o  (P.P. A.)"  tonus  ainl  \\w.  vessel  might  not  be  stranded, 
suidc,  burned  or  in  collision,  yet  (hrougli  the  springing  of  a  bottom 
plank  in  heavy  weather  or  other  fortuitous  causes,  the  cargo 
might  be  damaged  ninety-five  percent.  Under  the  American 
practice  recpiiring  but  a  moic^ty  of  damage  in  order  to  permit 
abandonment,  no  abandonment  could  l)c  made  in  this  case  be- 
cause the  loss  was  occasioned  by  a  peril  not  excei)ted  in  the  free 
of  average  clause.  Mere  delay  in  the  forwarding  of  goods  to  their 
destination  caused  by  a  pei'il  insured  against  will  not  give  the 
right  to  abandon. 

Total  and  Constructive  Total  Loss  of  Vessel. — To  have  a  valid 
claim  for  total  loss  on  vessel,  the  vessel  must  be  destroyed  or 
lost  or  reduced  to  a  condition  of  irreparability.  What  irrepara- 
bility  is  in  any  case  is  a  fjuestion  of  fact  and  may  be  judged  most 
accurately  by  the  action  which  a  prudent  uninsured  owner  would 
take  under  the  state  of  facts  presented.  The  usual  question  is: 
"  Will  the  cost  of  salvage  and  repairs  exceed  the  repaired  value?" 
As  has  already  been  indicated,  it  is  an  exceedingly  hard  matter 
to  determine  what  is  the  real  value  of  a  vessel.  In  order  to 
avoid  this  question  many  hull  policies  provide  that  the  insured 
value  shall  be  taken  as  the  repaired  value.  In  determining 
whether  or  not  there  is  a  constructive  total  loss  of  vessel,  there 
should  be  brought  into  consideration  any  temporary  repairs 
and  the  permanent  repairs  which  may  be  necessary  to  restore 
the  vessel  to  its  former  condition.  To  this  sum  is  added  the 
necessary  amount  of  salvage  which  must  be  paid  in  order  to 
bring  the  vessel  to  the  port  of  repair.  If  the  casualty  has  re- 
sulted in  general  average  sacrifices  or  expenditures  for  which  con- 
tribution will  be  received  by  the  owners,  deduction  should  be 
made  of  such  expected  recovery. 

Total  Loss  of  Cargo. — In  the  case  of  cargo,  a  total  loss  will 
occur  when  the  property  is  totally  lost  or  destroyed  as  in  a  case 
where  a  vessel  is  sunk  to  a  point  precluding  recovery  of  the  cargo 
or  where  the  cargo  is  completely  destroyed  by  fu-e.  It  will  often 
happen  in  case  of  fire  that  a  cargo  will  not  be  touched  by  fire, 
but  its  value  completely  destroyed  by  the  smoke  or  by  water 
or  steam  used  to  extinguish  the  fire.  Goods  may  also  be  rendered 
worthless  not  because  of  their  destruction  by  perils  insured 
against,   but   because   the   action  of  the   peril   has   completely 


TOTM.  LOSSES  335 

changed  the  nature  or  specie  of  the  insured  subject.  It  may  also 
be  that  a  constructive  total  loss  of  cargo  will  result  when  the 
goods,  while  not  excessively  damaged,  will  cost  so  much  to  carry 
forward  to  destination  that  their  value  at  destination  will  not 
equal  the  expenses  necessary  to  place  them  there.  This  is  quite 
frequently  the  case  with  bulky  articles  of  small  value,  where 
the  cost  of  handling  and  reconditioning  is  out  of  all  proportion 
to  the  intrinsic  value  of  the  commodity. 

Total  Loss  of  Freight. — A  total  loss  of  freight  occurs  when  a 
ship  and  its  cargo  become  a  total  loss  or  when  there  is  an  in- 
definite detention  of  the  ship  or  when  other  circumstances  exist 
which  make  it  impracticable  to  forward  the  cargo  and  so  earn  the 
freight.  In  the  case  of  a  round  trip  charter  if  there  be  a  total  loss 
of  the  ship  and  cargo  on  the  homeward  passage,  and  the  freight 
is  a  lump  sum  for  l)oth  outward  and  homeward  passages,  there 
will  be  a  total  loss  of  the  entire  freight.  The  same  rule  will  apply 
with  respect  to  a  constructive  total  loss  of  freight.  If  a  vessel 
in  ballast  proceeding  under  charter  to  a  loading  port  is  lost,  there 
will  be  a  total  loss  of  the  entire  freight  on  the  proposed  voyage. 
If  goods  under  a  collectible  freight  bill  of  lading  arrive  at  port  of 
destination  in  specie  but  in  a  worthless  condition  through  perils 
insured  against,  there  will  be  a  total  loss  of  freight  which  will  be  at 
the  risk  of  the  cargo  and  not  the  vessel  owner,  and  will  be  adjusted 
in  connection  with  the  settlement  of  loss  on  the  cargo.  A  con- 
structive total  loss  of  cargo  through  war  perils  results  in  a  con- 
structive total  loss  of  freight,  if  the  insurance  on  freight  is  against 
war  risks. 

Proximate  Cause. — It  will  be  observed  that  the  peril  causing 
loss  does  not  determine  whether  a  loss  is  general  average,  par- 
ticular average  or  total  loss.  The  cause  of  loss  is  ascertained 
in  order  to  determine  whether  or  not  the  loss  incurred  results  in  a 
liability  under  the  policy  which  is  being  considered.  In  deter- 
mining this  question,  however,  it  is  the  proximate  and  not  the 
remote  cause  of  the  loss  that  is  the  deciding  factor  in  establishing 
liability.  This  subject  has  been  considered  in  a  previous  chapter, 
but  the  question  of  proximate  cause  becomes  vital  in  the  con- 
sideration of  claims,  since  frequently,  doubt  will  exist  as  to  which 
of  two  perils,  only  one  of  which  is  insured  against,  operating 
simultaneously   or   in    succession,    was   the   proximate   and   an 


:VM)  .u.iAv.vA'  i.\srh'A.\cj': 

cllu'ii'iil  I'uusc  of  tlu;  loss.  The  gciu-ral  insui'uncc  of  war  perils, 
ami  the  fact  that  war  and  marine  perils  on  the  same  property 
arc  insured  with  different  underwriters  give  rise  to  many  ques- 
tions in  regard  to  proximate  cause.  A  captured  vessel,  or  a 
vessel  deviating  under  express  governmental  instructions,  may  be 
overtaken  l)y  marine  peril  while  in  a  p(M-fectl y  saf(;  and  proper  posi- 
tion. Although  no  doubt  will  exist  that  the  immediate  cause  of 
loss  is  a  marine  peril,  underwriters  will  be  loath  to  admit  liability, 
claiming  the  proximate  cause  of  loss  is  the  capture  or  the  deviation 
under  instructions,  thus  exposing  the  vessel  to  a  peril  which  would 
not  have  been  encountered  had  the  vessel  been  free  to  proceed  on 
her  voyage.  Each  particular  case  must  be  decided  on  its  merits, 
no  hard  and  fast  rules  existing  for  the  determination  of  these 
questions.  The  matter  is  one  of  fact  and  from  the  facts  obtain- 
able in  each  casethe  jM-oxiinate cause  of  loss  must  V)e  determined. 
War  Losses.  Missing  Vessels. — War  losses  fall  into  the  same 
general  classes  as  marine  losses,  but  experience  has  proved  that 
owing  to  the  nature  of  the  peril,  the  majority  of  such  losses  are 
total.  The  question  of  missing  vessels  was  an  important  one 
during  the  recent  war.  Here  again,  the  real  point  at  issue  was 
the  proximate  cause,  but  in  these  cases  the  question  had  to  be 
decided  by  circumstantial  evidence  alone,  and  therein  lay  the 
difficulty.  Prior  to  the  outbreak  of  the  World  War  it  was  a  well- 
established,  and  rarely  disputed,  principle  of  marine  insurance 
law  that  a  missing  vessel  was  presumed  to  have  been  lost  by  a 
marine  peril.  This  was  a  reasonable  theory  in  that  naval  opera- 
tions were  rather  restricted  and  unless  the  circumstances  were 
unusual,  definite  particulars  of  the  destruction  of  a  merchant 
vessel  by  war  peril  would  in  due  course  be  announced.  After 
b(>lligcrent  governments  l^cgan  using  mines,  there  was  alwaj's  the 
possibihty  that  a  missing  vessel  had  been  destroyed  by  a  drift- 
ing mine.  The  progress  of  the  late  war  saw  the  introduction  of 
entirely  new  met  hods  of  naval  w'arfare,  in  the  sowing  of  mines  at 
sea,  in  the  unrestricted  and  illegal  submarine  activities  and  in 
the  illegal  sinking  of  merchant  vessels  by  raiders.  It  therefore 
came  to  pass  that  vessels  on  comparatively  short  trips,  say  of 
three  or  four  days'  duration,  and  in  coastal  waters  would  sail  but 
never  again  be  spoken.  To  assume  and  to  decide  that  such  losses 
were  the  result  of  marine  perils  would  be  to  take  an  unjust  atti- 


TOTAL  LOSSES  337 

tude  with  respect  to  marine  underwriters,  especially  if  it  could  be 
established  that  the  vessel  was  perfectly  seaworthy  when  it  sailed 
and  during  the  ordinary  time  in  which  the  passage  could  ])e 
accomplished,  there  was  no  record  of  storm  to  which  the  loss  of 
the  vessel  might  be  attributed.  Accordingly  cases  are  on  record 
in  which,  under  such  a  state  of  facts,  the  loss  was  held  by  the 
court  to  l)e  due  to  war  perils.  Or  course,  as  distances  increase 
and  as  the  usual  length  of  voyage  l^ecomes  greater,  it  is  increas- 
ingly difficult  to  furnish  satisfactory  circumstantial  evidence 
tending  to  establish  the  cause  of  loss  of  a  missing  vessel.  How- 
ever, while  there  are  many  cases  of  missing  vessels  still  pend- 
ing, sufficient  judgments  have  been  rendered  to  indicate  that  the 
former  rule  of  marine  loss  in  such  cases  is  no  longer  presumed,  but 
that  the  whole  question  is  open  for  decision  on  its  merits. 

Presumption  of  Cause  of  Loss.- — -In  the  ordinary  case  where 
there  are  no  war  perils  involved,  where  the  vessel  sailed  in  a 
seaworthy  condition  and  no  evidence  is  foi'thcoming  to  indicate 
that  the  vessel  could  have  been  lost  by  any  peril  other  than  those 
insured  in  the  policy,  it  has  always  been  assumed,  after  the  lapse 
of  a  reasonable  length  of  time  without  tidings  from  the  vessel, 
that  it  has  been  lost  through  an  insured  peril.  The  length  of 
time  which  must  elapse  before  a  vessel  is  presumed  to  be  a  total 
loss  depends  upon  the  circumstances  of  the  particular  case,  with 
respect  to  the  length  of  the  voyage,  the  character  of  the  voyage, 
the  season  of  the  year  and  other  considerations  of  a  similar  nature. 
Under  English  practice  when  a  vessel  has  been  missing  for  such  a 
length  of  time  that  it  can  safely  be  presumed  to  be  a  total  loss, 
the  vessel  is  posted  at  Lloyd's  as  missing.  Ten  days  after  such 
posting  the  loss  becomes  due  and  claim  can  be  made  on  the 
underwriters.  In  this  country  the  loss  is  usually  due  thirty  days 
after  the  presumption  arises  that  the  vessel  is  lost.  Formerly 
there  seems  to  have  been  a  custom  that  such  presumption 
arose  after  the  lapse  of  a  year  and  a  day,  but  this  custom  is  now 
obsolete.  During  the  war  when  conditions  were  such  that  pru- 
dence required  that  there  be  no  haste  in  determining  the  status  of  a 
vessel  presumed  to  be  lost,  the  war  and  marine  underwriters  on  the 
risk  were  usually  disposed  each  to  settle  for  fifty  percent  of  the  loss 
without  prejudice,  permitting  the  question  of  liability  to  remain 
open  until  such  time  as  evidence  was  forthcoming  to  prove  the 


338  MARIXE  IXSI'NANCE 

cause  of  loss.  It  fic(iiu'ii(ly  Iiappcncd  during  the  World  War,  that 
luoudis  after  a  vessel  had  been  reported  inissinji;,  a  bclhgerent 
raidei-wouhl  return  (o  its  base;  and  report  the  sinking  of  thevesseh 

Perplexing  Problems. — It  is  not  alone  in  regard  to  missing 
vessels  that  the  war  has  created  doubt  as  to  the  jiroximate 
cause  of  loss,  but  cases  have  aiisen  whore  all  the  circumstances 
were  known  and  yet  the  question  was  one  requiring  judicial  deter- 
mination. Thus  in  the  case  of  a  vessel  sailing  without  lights  or 
sailing  over  an  unlighied  course  under  governmental  instructions, 
with  resultant  stranding  or  collision,  the  question  was  raised  as  to 
whether  the  proximate  cause  of  the  loss  was  one  arising  out  of  the 
conduct  of  the  war  or  whether  it  was  due  to  an  actual  i)eril  of  the 
sea.  New  problems  also  arose  in  connection  with  losses  caused 
by  submarines.  For  instance,  a  submarine  while  submerged 
might  be  run  into  by  a  merchant  vessel  and  a  question  would  arise 
whether  this  was  a  marine  or  a  war  loss.  Then,  too,  cases  oc- 
curred where  a  submarine  in  attempting  to  emerge  lifted  directly 
under  a  merchant  vessel  doing  great  damage.  Such  casualties 
occurred  not  only  at  sea  but  in  harbors  where  the  emerging 
submarine  was  not  a  belligerent  vessel  but  one  belonging  to  the 
same  nation  as  the  port.  In  other  cases,  vessels  were  torpedoed, 
though  not  injured  to  such  an  extent  that  they  were  sunk,  but  in 
making  port,  or  in  efforts  to  drive  them  ashore,  they  encountered 
marine  perils  which  resulted  in  their  ultimate  destruction.  Other 
novel  losses,  which  resulted  only  because  a  state  of  war  existed 
and  yet  in  their  nature  seemed  to  be  due  to  marine  perils  also 
brought  up  the  question  of  proximate  cause. 

Doubtful  Cases. — In  addition  to  these  cases  there  have  been 
others,  where  doubt  has  arisen  not  only  regarding  the  proximate 
cause  of  loss,  but  also  whether  or  not  the  inciting  cause  of  the  loss 
was  one  against  which  either  the  marine  or  the  war  policy 
would  furnish  protection.  Consideration  has  already  been 
given  to  these  cases  and  to  the  methods  of  furnishing  protection 
against  such  perils.  War  adds  many  new  problems  to  marine 
underwriting,  some  of  which  only  show  themselves  to  be  problems 
after  some  unexpected  and  unforeseen  type  of  loss  has  overtaken 
the  venture.  War  losses  are  adjusted  on  the  same  basis  as  marine 
losses,  the  principles  of  general  average,  paticular  average  and 
total  loss  applying  with  equal  force  to  this  character  of  loss. 


TOTAL  LOSSES  339 

The  Right  of  Subrogation. — No  consideration  of  the  subject  of 
marine  losses  would  be  complete  without  making  some  reference 
to  the  right  of  subrogation.  While  the  underwriter  may  be 
liable  under  the  policy  of  insurance  for  the  loss  incurred  it  does 
not  necessarily  follow  that  he  alone  is  responsible  for  the  injury 
suffered.  In  many  cases  there  arises,  because  of  the  accident 
causing  the  loss,  a  liability  on  the  part  of  some  third  party  to 
respond  for  the  injury  suffered  by  the  assured  through  the  damage 
or  destruction  of  his  property.  Thus  in  a  collision  case,  it  often 
happens  that  one  of  the  colliding  vessels  alone  is  at  fault,  and 
consequently  is  liable  for  the  damage  caused  except  in  so  far  as 
such  liability  may  be  limited  by  law.  This  liability  on  the  part 
of  the  colhding  vessel  does  not,  however,  exonerate  the  under- 
writers of  the  innocent  vessel  from  their  obligation  to  the  owner 
under  their  policies  of  insurance.  It  would  be  manifestly  unfair, 
however,  for  the  underwriters  to  respond  for  the  loss,  and  for  the 
owner  to  retain  his  right  of  action  against  the  owners  of  the 
offending  vessel.  Accordingly  in  order  that  the  equities  may  be 
preserved,  upon  the  payment  of  loss  by  the  underwriters,  they 
are  by  law  vested  with  the  benefits  accruing  from  the  right  of 
action,  which  has  arisen  in  favor  of  the  assured.  This  is  known  as 
the  right  of  subrogation.  Through  this  right  the  underwriter  is 
clothed  with  all  the  benefits  arising  from  claims  against  third 
parties,  which  have  arisen  since  the  date  of  the  casualty,  and  the 
assured  is  obligated  to  lend  his  name  and  good  offices  in  the 
collection  of  such  claims.  The  expense  of  collection,  legal 
and  otherwise  will,  of  course,  be  assumed  by  the  underwriters  in 
proportion  to  the  interest  which  they  have  in  the  claim.  If  the 
settlement  under  a  policy  covering  the  entire  interest  has  been 
for  a  total  loss  the  underwriter  is  entitled  to  the  benefit  of  the 
right  of  action  in  full,  if  on  the  other  hand  the  loss  is  but  partial 
or  the  property  is  not  fully  insured,  the  underwriter  will  be  sub- 
rogated only  to  the  extent  that  the  assured  has  been  indemnified. 
The  right  of  subrogation  arises  at  the  moment  of  payment. 

Salvage. — This  right  of  subrogation  must  be  distinguished  from 
the  interest  in  the  subject  matter  itself  known  as  salvage,  which 
the  underwriter  obtains  under  an  abandonment  or  by  assignment. 
In  the  case  of  a  particular  average  the  assured  naturally  retains 
physical  possession  of  the  property,  nevertheless  the  underwriter 


;5U)  MAia.\h'  L\Si'h'A.\('E 

by  virtue  of  the  payment  of  partial  loss,  is  subrogated  to  the 
rights  of  the  assured  against  tliird  parties,  because  of  the  loss. 
In  the  case  of  a  total  or  constructive  total  loss,  the  underwriter 
obtains  a  full  interest  in  the  salvage,  assuming  that  the  property 
has  been  fully  insured,  and  in  addition  by  this  right  of  subroga- 
tion is  vested  with  a  full  interest  in  all  claims  arising  out  of  th(; 
casualty. 

Carrier's  Liability. — In  considering  the  skeleton  form  of  cargo 
policy,  it  was  stated  that  most  underwriters  incorporated  a  clause 
under  which  the  assured  warrants  that  the  underwriters  shall  be 
free  of  any  liability  for  loss  or  damage  to  goods  in  possession 
of  a  land  or  water  carrier  or  in  possession  of  any  other  bailee 
who  may  be  liable  for  such  loss  or  damage  by  law,  or  under  an 
insured  bill  of  lading  or  under  a  rate  of  freight  that  includes 
insurance  or  otherwise.  It  further  stipulates  that  the  policy 
shall  be  void  with  respect  to  goods  shipped  under  a  bill  of  lading 
containing  a  provision  that  the  carrier  is  to  have  the  benefit  of 
any  insurance  that  may  be  placed  on  the  goods. 

Carriers  Slow  to  Respond  for  Losses. — As  already  indicated, 
a  common  carrier  by  land  is  held  to  a  high  degree  of  accounta- 
bility, while  a  common  carrier  by  water,  while  relieved  of  much  of 
his  legal  liability  under  statute,  is  nevertheless  still  charged  with 
considerable  responsibiUty  in  connection  with  the  safe-guarding 
and  protecting  of  property  in  his  custody.  It  is  a  well-recognized 
fact  that  collections  from  common  carriers  are  slow  and  in  many 
cases  uncertain,  the  carriers  taking  advantage  of  every  possible 
technicahty  in  order  to  avoid  payment  of  losses  due  to  their 
neghgence.  On  the  other  hand,  in  order  that  modern  business 
may  continue  uninterruptedly,  it  is  necessary  that  merchants 
be  promptly  reimbursed  in  the  event  of  loss  or  damage  overtaking 
their  property.  Thus  it  has  become  the  custom  for  underwriters 
to  reimburse  merchants  for  losses  to  their  property  caused  by 
perils  insured  against,  but  which  are  due  to  the  negligence  of  the 
carriers,  the  merchants  at  the  same  time  filing  claim  and  en- 
deavoring to  recover  from  the  carrier.  In  the  event  of  recovery, 
the  mercliants  reimburse  the  underwriters  for  the  payment  made. 

Benefit  of  Insurance  Clauses. — In  cases  where  this  condition 
exists,  the  carriers,  knowing  that  the  merchant  had  been  reim- 
bursed for  his  loss,  have  refused  to  settle  claims,  taking  the  posi- 


TOTAL  LOSSES  341 

tion  that  the  merchant  being  reimbursed  l^y  his  underwriter,  had 
really  suffered  no  injury.  In  order  to  further  strengthen  this 
position,  clauses  were  inserted  in  ])ills  of  lading  by  which  the 
carrier  claimed  the  full  benefit  of  any  insurance  that  might  be 
effected  upon  or  on  account  of  said  goods.  The  validity  of  these 
clauses  was  douljtful,  but  in  order  that  the  underwriters  might  not 
be  embarrassed  by  the  presence  of  such  clauses  in  bills  of  lading 
they  inserted  in  their  policies,  another  clause  making  the  policy 
void  witli  respect  to  merchandise  shipped  under  l)ills  of  lading 
containing  the  stipulation  that  the  carrier  should  have  the  benefit 
of  any  insurance  on  the  goods.  This  had  the  effect  of  annulling 
the  advantage  which  the  carrier  hoped  to  get  by  his  benefit  of 
insurance  clause.  The  courts  have  upheld  the  validity  of  this 
clause  in  insurance  policies. 

Loan  Receipts. — However,  this  clause  in  an  insurance  policy 
left  the  merchant  without  protection,  so  a  further  stipulation 
was  made  in  the  policy  by  which  the  underwriter  agreed,  with  the 
assured,  that  in  the  event  of  loss  or  damage  covered  by  the  policy, 
for  which  the  carriers  might  be  liable,  the  underwriter,  in  order 
to  place  the  merchant  in  funds,  would  advance  to  him  as  a  loan, 
an  amount  approximating  the  loss  suffered.  This  loan  would 
be  repaid  if  recovery  were  obtained  from  the  carriers  except  in  so 
far  as  such  recovery  was  insufficient  under  the  terms  of  the  policy 
to  reimburse  the  merchant  for  his  loss.  A  regular  form  of  loan 
receipt  was  prepared  in  such  cases,  which  was  signed  by  the  as- 
sured. The  carriers  then  endeavored  to  take  the  position  that 
the  loan  receipt  was  but  a  subterfuge,  and  that  owing  to  the  fact 
that  the  merchant  was  really  reimbursed  by  the  underwriter 
for  the  loss  which  had  occurred,  the  merchant  was  not  injured 
by  the  non-payment  of  the  loss  on  the  part  of  the  carrier.  This 
question  has  been  a  disputed  one  for  sometime  but  in  a  decision 
recently  handed  down  by  the  Supreme  Court  of  the  United  States, 
the  validity  of  the  loan  receipt  has  been  finally  established  and 
the  carrier  is  held  to  a  strict  accountability  under  the  liability 
imposed  upon  him  by  law. 


C'lTAPTKR  21 
BROKERS.     MUTUAL  COMPANIES 

The  Business  of  Insurance. — There  remains  for  consideration 
what  may  be  termed  for  want  of  a  better  name,  the  mechanical 
side  of  marine  underwriting,  that  is,  the  physical  processes  in 
connection  with  the  underwriting  of  risks.  This  subject  natu- 
rally divides  itself  into  three  parts,  first,  the  method  of  contact 
between  the  assured  and  the  underwriter,  second,  the  conduct 
of  the  underwriter's  own  organization,  that  is,  the  incorporated 
insurance  company,  and  third,  the  accountability  of  the  under- 
writer to  the  i)ublic,  for,  having  received,  by  the  grace  of  the 
public,  the  right  to  conduct  the  business  of  insurance,  the  public 
demands  that  the  stewardship  of  this  privilege  be  revealed  to  it 
through  the  annual  statement  of  the  affairs  of  the  company  to 
the  various  state  insurance  departments.  These  three  phases 
will  be  considered  in  this  and  the  following  chapter. 

Brokers. — The  contact  of  the  public  with  the  underwriter 
is  established  in  one  of  two  ways,  first,  directly  either  by  personal 
interview  or  through  the  mail,  and  second,  through  an  inter- 
mediary, a  technically  trained  expert,  specializing  in  the  business 
of  marine  insurance  and  known  as  the  insurance  broker.  The 
special  agent,  so  common  in  other  branches  of  insurance,  is  practi- 
cally unknown  in  marine  insurance,  While  the  direct  method  of 
contact  with  assured  and  underwriter  continues  to  a  considerable 
extent,  especially  in  connection  with  mutual  insm-ance,  it  is  not 
surprising  that,  in  a  time  when  efficiency  is  one  of  the  gods  at 
whose  feet  business  men  worship,  the  broker  should  gain  a  place 
of  ever  increasing  importance  in  the  marine  insurance  field.  He 
may  be  called  the  middle  man  of  the  marine  insurance  market, 
knowing  accurately  market  conditions,  and  acting  as  the  dis- 
tributing medium  l^ctween  the  underwriter  and  the  merchant. 

Not  a  New  Factor.^ — -The  broker  is  in  no  sense  a  new  factor  in 
the  marine  insurance  market.  As  early  as  the  fifteenth  century 
reference  is  found  both  in  England  and  Continental  countries 

342 


BROKERS.     MUTUAL  COMPANIES  343 

to  the  activities  of  insurance  brokers.  Individual  underwriting 
probably  created  the  condition  which  made  useful  the  work 
of  the  broker.  It  will  be  recalled  that  in  England,  at  least,  for 
some  time  private  underwriters  conducted  their  business  in  their 
own  homes.  It  was  a  great  aid  to  the  merchant,  to  be  able  to 
engage  the  services  of  one  who  knew  where  the  underwriters 
lived  and  who  would  take  the  policy  from  house  to  house  obtain- 
ing the  signatures  of  various  underwriters  until  the  whole  amount 
was  taken  and  the  policy  of  insurance  completed.  With  the 
gathering  of  the  individual  underwriters  under  one  roof,  the  same 
need  of  an  intermediary  between  assured  and  underwriter  con- 
tinued, and  the  broker  passed  from  desk  to  desk  obtaining  signa- 
tures. Even  today,  at  Lloyd's,  the  room  is  not  open  to  the 
public,  but  authorized  brokers,  some  of  whom  are  themselves 
underwriting  members  of  Lloyd's,  perform  this  important  and 
necessary  work  in  the  placing  of  marine  risks. 

Brokers  Indispensable. — In  this  country,  the  broker  appeared 
early  in  the  insurance  market  and  has  grown  with  the  develop- 
ment of  the  business  and  now  performs  an  indispensable  service 
in  the  placing  of  marine  risks.  His  work  has  in  principle  changed 
little,  for  as  it  was  necessary  four  hundred  years  ago  to  visit  fifty 
individual  underwriters  to  place  a  risk  of  £10,000,  so  today  it  is 
sometimes  necessary  to  obtain  the  aid  of  fifty  incorporated  in- 
surance companies  in  order  to  place  a  risk  of  $1,000,000.  The 
values  coming  into  the  market  are  proportionately  larger,  but 
the  law  of  supply  and  demand  works  inexorably  and  the  market 
rarely  becomes  larger  than  is  needed  for  the  ordinary  line,  so 
that  brokers  still,  as  in  the  older  days,  wear  beaten  tracks  between 
the  offices  of  the  underwriters. 

Occupies  an  Anomalous  Position. — The  broker  occupies  a 
somewhat  anomalous  position  in  the  field  of  agents.  Ordinarily 
an  agent  is  paid  by  his  principal.  With  the  insurance  broker, 
however,  this  condition  is  reversed.  He  is  engaged  by  and  acts 
as  the  agent  of  the  assured,  but  is  compensated  by  the  under- 
writer. It  is,  of  course,  true  that  the  merchant  indirectly  pays 
for  the  service  rendered  in  the  increased  cost  of  insurance,  never- 
theless, it  is  an  indirect  charge,  which  does  not  make  the  same 
mental  impression  as  an  item  of  brokers'  commission  would 
if  added  to  the  bill  for  insurance  premium.     If  the  charge  were 


;;  1 1  MAh'JM-:  i.\sih'.\.\cK 

so  iikkIc  il  would  (l()ul)(less  result  in  moi'c  direct  (ransactioiis 
Ix'twcen  assured  and  underwriter,  l)ut  whether  this  would  woi'k 
to  (lie  advantage  of  eitlier  assured  or  insurer  is  altogether  prolileni- 
atical.  The  average  assured  needs  the  services  of  a  highly 
trained  expert  in  wlioni  he  has  a  confidence  that  he  might  not 
have  in  an  underwriter  who  would  l)e  one  of  the  parties  to  the 
contract.  A  disinterested  intermediary  tends,  at  least,  to  calm 
the  mind  of  the  assured  who,  as  a  rule  in  this  country,  is  quite 
ignorant  of  the  principles  of  this  exceedingly  important  part  of 
his  conunercial  transactions.  An  expert  broker  not  only  is  of 
value  to  the  assured,  but  he  i)erforms  a  distinct  service  to  the 
underwriter  in  relieving  the  latter  of  the  necessity  of  explaining 
to  inexperienced  assured  tlieir  jwlicy  obligations  and  in  preparing 
for  the  underwriter  proper  declarations  of  insurance  from  the 
inade(}uate  reports  too  often  submitted  b}'  the  assured. 

The  Broker  Offers  Service. — The  broker,  then,  offers  himself 
for  employment  as  a  specialist,  as  an  expert  in  the  principles  and 
practice  of  marine  insurance.  A  broker  has  but  one  thing  to 
offer  to  the  assured  and  that  is  service.  Service  in  its  broadest 
meaning  is  the  sole  defendable  reason  for  the  existence  of  the 
able  group  of  brokers  found  in  the  marine  market.  The  com- 
parative success  or  failure  of  individual  brokers  or  of  fimis  of 
brokers  rests  in  large  part  on  the  interpretation  they  give  to  this 
word  service.  It  is  not  enough  that  the  broker  place  the  risk 
which  his  client  sends  him.  He  must  place  it  with  the  under- 
writers having  the  greatest  security  and  the  best  reputation  for 
fair  dealing  with  the  assured.  This,  however,  represents  in  its 
barest  outline  the  duty  of  the  broker. 

A  Trained  Expert. — In  soliciting  business,  the  broker  presents 
himself  to  a  prospective  client  as  a  trained  expert  in  the  business 
of  marine  insurance.  He  offers  to  obtain  the  kind  of  insurance 
which  this  merchant  or  shipowner  needs  at  a  less  cost  than  he  is 
now  paj-ing,  or  to  provide  better  insurance  at  the  same  cost 
or  at  a  cost  slightly  greater  than  the  prospective  client  Ls  now 
paying,  which  latter  will  actually  result  in  a  reduction  of  cost  on 
account  of  the  lessened  risk  remaining  at  the  charge  of  the 
assured.  He  further  offers  to  take  better  care  of  the  client's 
interests,  to  relieve  him  of  all  responsibility  in  regard  to  the 
insurance  except  the  duty  of  promptly  reporting  the  facts  nee- 


BROKERS.     MUTUAL  COMPANIES  345 

essary  to  enable  the  broker  to  place  the  insurance.  He  further 
offers,  in  the  event  of  loss,  to  conduct  the  negotiations  relating 
to  the  adjustment  and  payment  of  said  loss  without  trouble 
to  the  assured.  The  performance  of  these  duties  and  others 
unnamed,  but  which  are  inseparably  bound  up  in  the  complete 
execution  of  those  which  are  named,  is  furnishing  service.  Suc- 
cess, and  with  it  prosperity,  will  come  to  those  brokers  who 
make  good  their  promise  by  performance  in  a  manner  better 
and  more  export  than  their  fellows. 

The  Broker  Knows  the  Market. — The  broker,  as  a  trained 
expert,  requires  a  degree  of  knowledge  approximating  in  a  meas- 
ure that  which  the  expert  underwriter  or  loss  adjuster  has.  The 
broker  obtains  from  his  client  a  bare  statement  of  facts  concern- 
ing his  commercial  operations,  the  kind  of  goods  in  which  he 
trades,  the  routes  of  shipment  and  other  necessary  items  to  enable 
him  to  gain  a  clear  insight  into  the  kind  of  risks  upon  which  he 
must  obtain  insurance.  Having  this  information  in  hand,  he 
applies  his  knowledge  of  marine  insurance  to  these  facts,  decid- 
ing what  form  of  protection  is  best  suited  to  the  particular  case. 
He  carefully  weighs  the  comparative  gain  in  the  use  of  clauses 
granting  a  high  degree  of  protection  with  respect  to  average,  for 
instance,  against  the  increased  cost  of  such  protection.  Having 
reached  a  conclusion  he  may  first  submit  and  explain  to  his 
client  the  form  of  insurance  which  he  would  advise  and  obtain 
the  consent  of  the  client  to  accept  such  a  pohcy.  Of  course,  if 
there  should  be  any  doubt  in  the  mind  of  the  broker  as  to  the 
possibility  of  obtaining  the  kind  of  protection  which  he  thinks 
the  client  needs,  he  will  first  test  the  market  to  learn  if  there  are 
underwriters  who  will  accept  the  proposed  policy  and  at  what 
rates.  The  suggestion  that  he  obtain  a  certain  form  of  insurance 
may  appeal  strongly  to  a  new  or  prospective  client,  but  if  the 
proposal  cannot  be  underwritten  little  credit  will  result  to  the 
broker.  A  broker  must  have  a  working  knowledge  of  what  the 
market  offers  and  at  what  cost. 

Progressive  Underwriting. — However,  it  must  not  be  pre- 
sumed that  the  broker  should  limit  his  efforts  to  obtaining  condi- 
tions or  rates  which  he  knows  are  readily  granted.  If  he  honestly 
believes  that  his  client  needs  a  form  of  protection  not  heretofore 
offered  by  underwriters,  or  if  his  client  demands  a  certain  form 


;M(1  .U.i/.'/.VA'  IXSllRAXCE 

of  protection  which  he  bcHcvcs  can  he  consistently  lUHlcrwriitcn, 
it  is  his  (hity  as  an  intcnnctliary  to  use  his  efforts  to  obtain  such 
form  of  policy.  Much  of  the  progress  which  has  been  made  in 
the  broadening  of  the  marine  insurance  contract  is  due  to  the 
honest  etTorts  of  experienced  brokers  to  obtain  better  protection 
for  their  cUents.  At  this  point,  however,  the  broker  is  treading 
on  dangerous  ground.  In  his  desire  to  gain  lousiness  he  may 
advocate  the  granting  of  conditions,  which  on  sober  second 
thought  he  may  reahze  are  fraught  with  peril  to  the  careless 
underwriter.  Nevertheless  his  desire  for  business  may  warp 
his  judgment,  and  he  will  seek  to  obtain  these  unwise  insurance 
conditions  and  perhaps  succeed.  If  the  underwriter  is  induced 
to  grant  weak  conditions  and  consequently  suffers  heavy  losses 
he  will  be  apt  to  consider  with  undue  caution  future  proposals 
from  this  source.  To  be  sure,  competition  often  compels  a 
broker  to  ask  an  underwriter  to  grant  conditions  which  he 
believes  to  be  unwise,  but  if  in  such  cases  the  broker  will  take 
the  trouble  to  explain  that  competition  is  causing  him  to  plead 
against  his  better  judgment,  the  underwriter  will  be  more  dis- 
posed to  treat  with  him  and  cannot  later  feel  that  the  broker  has 
taken  an  unfair  advantage. 

The  Broker's  Duty  Twofold. — It  may  be  thought  that  an 
underwriter  should  be  competent  to  take  care  of  himself  and  that 
if  he  does  poor  underwriting  in  the  granting  of  unwise  conditions 
and  inadequate  rates  he  alone  is  responsible.  This  is  not  alto- 
gether the  case.  It  frequently  happens  that  a  broker  controlling 
a  large  volume  of  business,  will  obtain  a  powerful  position  in 
the  underwriting  market  and  underwriters  will  seek  his  favor, 
in  order  to  obtain  a  share  of  the  business  which  he  controls. 
When  such  a  condition  exists  a  broker,  in  order  to  obtain  from  a 
prospective  client  an  account  controlled  by  another  broker,  may 
offer  to  furnish  a  policy  containing  conditions  which  appeal  to 
the  client,  but  which  the  broker  knows  are  not  in  harmony  with 
sound  underwriting.  Having  obtained  the  account  under  such 
promise,  he  will  use  his  power  indirectly  it  may  be,  but  neverthe- 
less effectively,  to  induce  one  or  more  underwriters  to  grant  the 
required  conditions.  The  broker  owes  a  duty  not  only  to  his 
client  but  also  to  the  underwriter  to  foster  and  conserve  in  every 
practicable  way  the  stability  of  the  latter  in  order  that  the 


BROKERS.     MUTUAL  CO  MR  AN  IBS  347 

security  behind  the  policy  may  continue  to  be  of  the  best.  Brok- 
ers should  realize  that  the  success  of  the  insurance  companies 
alone  makes  possible  the  continued  existence  of  their  own 
business.  In  this  country,  the  broker  has  no  capital  at  risk  which 
will  be  affected  by  the  success  or  failure  of  the  underwriter. 
Nevertheless,  it  is  just  as  much  his  duty  to  refrain  from  asking 
unwise  insurance  conditions  of  underwriters  as  it  is  to  see  that  his 
client  obtains  the  fullest  measure  of  protection  consistent  with 
safe  underwriting.  The  broker  should  realize  that  in  the  last 
analysis,  his  interest  and  that  of  the  underwriter  are  one. 

The  Broker's  Attitude  Toward  Losses. — It  is  not  alone  in  the 
placing  of  risks  that  the  broker  has  this  twofold  duty.  The  same 
obligation  exists  with  respect  to  the  collection  of  losses.  Not- 
withstanding the  efforts  which  the  broker  may  make  to  explain 
to  the  assm-ed  the  measure  of  protection  which  he  is  receiving 
under  the  policy  of  insurance  in  regard  to  perils  covered  and  to 
average  conditions  granted,  some  assureds  feel  that  in  the  event 
of  loss  the  underwriter  should  recompense  them  no  matter  what 
the  nature  or  extent  of  the  damage  suffered.  Accordingly  they 
will  present  a  claim  to  the  broker.  In  cases  where  the  facts 
presented  indicate  clearly  that  no  liability  exists  on  the  part  of 
the  underwriter,  the  claim  should  never  reach  him.  The 
broker  should  return  it  to  the  assured  and  explain  to  him  why 
no  liability  rests  upon  the  underwriter.  If,  on  the  other  hand, 
there  is  a  reasonable  doubt  as  to  the  question  of  liability,  or  if 
the  facts  as  presented  are  unusual  and  give  rise  to  the  question  as 
to  whether  as  a  matter  of  equity  rather  than  as  a  matter  of  legal 
right,  the  assured  may  be  entitled  to  a  hearing  with  respect  to  the 
claim,  then  the  broker  should  present  the  case  to  the  underwriter, 
pleading  the  cause  of  his  client,  but  leaving  the  question  of 
settlement  to  the  judgment  of  the  underwriter.  The  broker's 
position  is  not  always  an  easy  one  and  in  many  cases  no  little 
degree  of  tact  is  required  in  order  to  amicably  satisfy  both 
assured  and  assurer.  His  position  is  often  that  of  a  buffer 
talcing  up  the  blows  deHvered  by  both  assured  and  underwriter. 

The  Broker  Arranges  Settlement  of  Losses. — The  duty  of  a 
broker  does  not  end,  however,  with  the  presentation  of  claim  for 
loss.  Sometimes  he  actually  makes  an  adjustment  of  the  loss, 
merely  presenting  the  completed  claim  for  the  approval  of  and 


:M8  MMi'lM-:  JXSURAACE 

sctlleincnt  by  the  un<lor\vril(>rs.  Some  nndcrwrilors  prefer  to 
make  their  own  iuljustineTits  and  in  siu;li  eases  the  broker  eoUeets 
the  necessary  documents  in  order  to  prove  the  claim,  presenting 
these  to  the  underwriter  for  his  considcM-Mtion.  The  underwriter 
then  makes  up  the  adjustment  whicli  is  presented  to  the  broker 
for  the  approval  of  his  client  before  payment  is  made.  It  is  the 
duty  of  the  broker  to  carefully  scrutinize  this  statement  of  loss, 
and  to  make  certain  that  his  client  is  receiving  the  full  measiu'e 
of  recovery  afforded  by  the  policy.  Having  approved  the  adjust- 
ment and,  if  necessary,  obtained  the  assent  of  the  assured  to  it, 
and  having  arranged  for  the  execution  of  whatever  documents  of 
assignment  may  be  required  ])y  the  underwriter,  he  collects  the 
loss  ;in(l  makes  remittance  to  his  client. 

The  Broker's  Services  in  General  Average. — If  the  casualty 
in  which  the  property  is  involved  results  in  a  general  average 
sacrifice,  the  broker  makes  the  necessary  arrangements  for  the 
release  of  the  goods,  advises  with  respect  to  the  general  average 
bond,  and  obtains  the  general  average  guarantee  from  the  under- 
writers. The  amount  of  time  and  trouble  expended  in  the 
collection  of  losses  is  sometimes  very  great,  especially  when  intri- 
cate questions  of  liability  arise.  Some  brokers  charge  a  commis- 
sion for  the  collection  of  losses,  while  others  perform  this  labor 
gratis,  considering  that  this  is  part  of  the  service  they  have  agreed 
to  give  their  client.  In  any  event,  unlike  the  placing  commission 
which  is  paid  by  the  underwriter,  the  collecting  commission  is 
paid  b}^  the  assured,  either  as  a  separate  item,  or  if  the  loss  is 
directly  paid  muler  order  of  the  assured  to  the  broker,  by  a  deduc- 
tion in  the  remittance  of  the  payment  of  loss  to  the  assured. 

Commissions. — The  question  of  commission  should  be  the  last 
thought  of  the  broker.  It  is  true  that  this  is  the  source  of  his 
income,  yet  the  main  consideration  for  the  broker  is  to  give  the 
best  quality  of  service  to  his  clients  and  to  so  conduct  his  opera- 
tions with  the  underwriters  that  })oth  client  and  underwriter 
will  wish  to  do  business  with  him  again.  If  the  broker  can  suc- 
cessfully meet  this  twofold  ol)ligation,  the  matter  of  commission 
will  take  care  of  itself  and  his  financial  success  will  be  assured. 
To  the  conscientious  and  skillful  broker  the  business  is  ver}-  lucra- 
tive. In  the  ])r()kerage  field  a  good  rep\itation  spreads  quite  as 
quickly  as  does  a  bad  one,  and  clients  will  come  to  the  broker 


BROKERS.     MUTUAL  COMPANIES  349 

who  consistently  furnishes  the  best  service  and  who  because 
of  his  relations  with  the  underwriters  can  furnish  policies  backed 
by  the  best  security  which  the  market  affords. 

Broker  Does  Not  Guarantee  Payment  of  Premiums. — In  this 
country  the  broker  in  the  ordinary  case  does  not  guarantee  the 
solvency  of  his  client,  that  is,  he  is  not  a  guarantor  for  the  collec- 
tion of  the  premiums.  It  is  his  duty,  however,  to  use  all  reason- 
able efforts  to  make  collection  of  the  premium,  but  if  his  client 
becomes  financially  embarrassed  and  fails  to  pay,  this  does  not 
create  any  financial  obligation  on  the  part  of  the  broker  to  the 
underwriter.  It  sometimes  is  the  case,  however,  that  an  imder- 
writer  may  be  unwilling  to  write  an  account  because  of  lack  of 
faith  in  the  financial  standing  of  the  assured,  in  which  event  the 
broker  ma}^  guarantee  the  payment  of  the  premiums.  Such 
agreement  should  not  be  left  to  inference,  but  should  be  expressly 
agreed  to  in  writing  by  the  broker.  While  there  is  no  financial 
obligation  on  the  part  of  the  broker  in  the  ordinary  case  with 
respect  to  the  payment  of  premium,  there  is  a  moral  obligation 
on  his  part  not  to  offer  business  to  an  underwriter  unless  he  is 
reasonably  certain  of  the  financial  integrity  of  his  client.  Fur- 
thermore the  broker's  own  reputation  with  the  underwriter  is  in 
a  large  measure  determined  by  the  character  of  business  offered. 
If  he  constantly  offers  businss  where  the  moral  hazard  is  bad,  or 
business  which  proves  unprofitable  because  of  careless  packing  or 
handling  of  goods  or  of  lack  of  skill  in  the  operation  of  vessels 
he  will  soon  find  that  the  first-class  market  is  closed  to  him  and 
that  all  risks  offered  by  him  are  looked  upon  with  suspicion. 
A  broker's  reputation  will  depend  in  no  small  measure  on  the 
reputation  of  his  clients. 

The  Broker  as  an  Underwriter. — Within  recent  years  a  new 
situation  has  developed  in  the  marine  underwriting  field,  where 
brokers  have  entered  on  the  dual  career  of  broker  and  under- 
writer. That  is,  large  brokerage  firms  or  corporations,  which 
formerly  confined  their  operations  solely  to  the  placing  of  risks 
and  the  adjusting  of  losses,  have  opened  separate  departments  for 
the  underwriting  of  risks,  receiving  appointment  as  general  or 
special  agents  of  important  marine  insurance  companies.  In 
some  cases,  the  underwriting  is  conducted  under  the  same  name 
as  the  brokerage  portion  of  the  business,  in  others,  a  separate 

24 


:^'>0  u.i/.'/.va;  i.\si!i{.\.\c/<; 

111  111  or  corporation  is  oi-gaiiized  for  tlic  coudiicl  of  the  undcr- 
wiitiiig  section  of  the  business.  While  there  is  an  apparent 
s(>p;u;i(ion  of  interest  there  is  n(!ver(heless  a  unity  of  control. 
If  there  is  a  complete  sepaiation  between  the  two  branches  of 
the  business  there  would  sccni  to  be  no  sufhcient  reason  why  a 
broker  should  not  (jxtend  his  activities  to  the  underwriting 
Held.  The  principal  difhculty  in  the  situation  is  one  which  can- 
not be  removed;  that  is,  human  nature.  It  is  a  difficult  matter 
for  two  phases  of  a  business  which,  in  a  measure  are  opposed  to 
each  other  in  their  method  of  approaching  the  problems  of  that 
business,  to  be  conducted  by  a  single  person  or  by  the  same 
group  of  persons  without  the  two  methods  of  approach  becoming 
involved. 

A  Difficult  Relation. — The  two  chief  dangers  in  this  complicated 
system  are  first,  that  the  aid  of  the  underwriting  branch  of  the 
business  will  be  given  to  the  brokerage  branch  in  order  to  create 
a  lead.  That  is,  the  underwriting  branch  may  grant  conditions 
and  rates  which  are  necessary  for  the  obtaining  of  a  new  account, 
and  if  the  companies  represented  are  of  sufficient  reputation, 
other  underwriters  may  follow  the  lead.  In  the  second  place,  a 
broker  acting  as  an  underwriter  obtains  valuable  information 
regarding  the  business  connections  of  other  brokers.  The 
underwriter  occupies  a  confidential  relation  both  to  broker  and 
to  assured,  and  if  a  broker  acting  as  underwriter  abuses  this  con- 
fidential relation  the  result  will  be  that  other  brokers  will  not 
avail  of  the  underwriting  facihties,  except  in  case  of  urgent  ne- 
cessity^, and  there  will  be  a  consequent  loss  of  business  to  the 
insurance  company  which  has  entrusted  its  underwriting  agency 
to  a  broker.  From  the  company  standpoint,  however,  this  may 
possi])ly  be  offset  by  a  consideration  of  the  fact  that  a  large 
brokerage  concern  controlling  a  great  amount  of  business  may 
bring  to  the  company  a  volume  of  premium  income  which  it 
might  not  otherwise  obtain.  Wliile  the  entrance  of  the  broker 
into  the  underwriting  field  has,  up  to  the  present  time,  revealed 
no  considerable  abuse  of  the  dual  relation,  it  is  a  condition  that 
is  fraught  with  dangerous  possibilities  and  one  which  in  the 
hands  of  unscrupulous  persons,  might  lead  to  serious  conse- 
quences. On  principle,  a  complete  separation  of  broker  and 
underwriter   will   tlo  most   to  foster   the  "Towth  of  the  marine 


BROKERS.     MUTUAL  COMPAXIES  351 

market  and  will  leave  competition  free  antl  open  with  resultant 
benefit  to  the  insuring  public. 

Brokers  in  England. — Because  of  the  intimate  connection 
between  the  Enghsh  and  American  marine  insurance  markets, 
it  is  interesting  to  note  the  different  method  of  conducting 
brokerage  operations  in  England.  There  the  broker  occupies  a 
position  which,  to  a  certain  extent,  is  fiduciary  in  its  nature. 
It  has  already  been  pointed  out  that  the  ordinary  form  of  the 
English  policy  by  its  terms  confesses  payment  of  premium. 
The  Marine  Insurance  Act  of  Great  Britain  provides  that  where 
a  marine  policy  effected  by  a  broker  on  behalf  of  the  assured 
acknowledges  receipt  of  the  premium,  that  such  acknowledg- 
ment is,  in  the  absence  of  fraud,  conclusive  as  between  the  in- 
surer and  the  assured,  but  not  as  between  the  insurer  and  the 
broker.  This  seems  to  free  the  assured  from  any  liability  for 
premium  under  such  a  policy.  Another  section  of  the  same  Act 
provides  that  when  a  pohcy  is  placed  by  a  broker,  the  broker 
is  responsible  to  the  underwriter  for  the  premium,  but  he  has  a 
lien  on  the  pohcy  for  the  premium  plus  his  charges  for  effecting 
the  insurance.  The  system  in  use  in  Great  Britain  is  for  the 
broker  to  make  monthly  remittances  to  the  underwriters  for 
premiums  due,  the  broker  receiving  the  policies  and  retaining 
them  until  payment  is  made  by  the  assured.  The  assured  is  also 
expected  to  make  monthly  remittances  to  the  broker,  ten  per- 
cent discount  being  allowed  by  the  underwriter  to  the  broker 
and  by  him  in  turn  to  the  assured  if  payments  are  made  by  the 
tenth  of  the  month.  In  addition  to  this,  the  underwriter  allows 
five  percent  to  the  broker  as  a  placing  commission. 

Losses  and  Return  Premiums. — While  the  payment  of  pre- 
mium is  in  England  a  matter  that  rests  between  the  underwriter 
and  the  broker,  the  underwriter  is  directly  responsible  to  the 
assm'ed  for  the  payment  of  losses  and  for  the  payment  of  return 
premiums.  The  broker  is  thus  placed  in  the  peculiar  position  of 
being  hable  for  the  premium,  but  in  the  event  of  non-payment 
Vjy  the  assured  he  is  not  able  to  lay  claim  to  a  possible  loss  out 
of  which  he  might  reimburse  himself  for  the  premium  paid. 
However,  if  the  broker  retains  possession  of  the  policies  as  is  his 
right  under  the  law,  until  the  premium  is  paid,  he  will  be  in 
the  ]X)sition  of  preventing  the  assured  from  collecting  a  loss  or 


:'.'>!'  M . I /.'/ A  /•;  /.v.sT'A'.i .\( •/•; 

a  return  premium  owing  to  tlu;  n<)ii-;ii)ili(y  of  the  latter  (o  produce 
the  policy.  The  broker's  pcjsitiou  is,  therefore,  not  quite  as 
precarious  as  the  bare  statement  of  the  rule  would  seem  to 
indicate.  Furthermore  the  lien  which  the  broker  retains  by  the 
l)()ssession  of  the  policy  does  not  apply  to  the  particular  policy 
alone,  but  to  any  other  unpaid  balance  arising  out  of  an  in- 
surance account  between  the  broker  and  his  client. 

Current  Accounts.— As  a  matter  of  practice,  however,  the 
l)roker  usually  attends  to  the  collection  of  return  premiums 
and  losses  and  runs  a  credit  and  debit  account  with  hisclient,  charg- 
ing the  account  with  premiums  due  and  crediting  it  with  returji 
premiums  and  losses  recovered,  the  debit  or  credit  balance  being 
settled  from  time  to  time  by  the  assured  or  the  broker  as  the 
balance  may  make  necessary.  This  bare  outline  of  brokerage 
practice  in  England  will  serve  to  indicate  the  more  responsiVjle 
position  of  the  broker  in  the  English  marine  insurance  market 
as  comj^ared  with  his  American  contemporary. 

Mutual  Companies. — In  connection  with  the  placing  of  in- 
surance directly  with  the  underwriter  by  the  assured,  the  mutual 
company  offers  perhaps  the  best  illustration,  though  this  direct 
method  is  by  no  means  confined  to  mutual  companies.  The 
mutual  idea,  however,  was  originally  adopted  in  order  that  mer- 
chants and  shipowners  might  reduce  the  cost  of  insurance  by 
reducing  the  overhead  charges  involved  in  the  placing  of  risks. 
The  mutual  idea  was  not  new  when  the  first  mutual  companies 
were  organized  in  this  country.  The  original  theory  of  insm-ance 
in  England  was  mutual  in  its  conception,  merchants  and  ship- 
owners meeting  in  the  coffee  houses  and  each  accepting  a  share 
in  the  ventures  of  their  fellows.  The  novel  feature  in  the  develop- 
ment of  the  mutual  theory  in  this  country  was  the  plan  of  con- 
ducting mutual  underwriting  through  a  corporation.  In  the 
second  quarter  of  the  nineteenth  century  the  idea  took  deep 
root  in  the  United  States  and  many  mutual  insurance  companies 
were  chartered.  As  is  often  the  case  with  ideas  looking  to  the 
reduction  of  the  cost  of  commodities  or  of  service,  the  theory 
is  advanced  by  men  who  are  visionaries  rather  than  experienced 
business  men  with  the  inevitable  result  that  the  theory  in  its 
application  is  stripped  of  sound  business  principles.  This  ex- 
plains in  part  the  meteoric  rise  of  the  mutual  idea  in  the  coimtry 


BROKERS.     MUTUAL  COMPANIES  353 

and  its  equally  rapid  decline.  Men  who  were  .successful  in  their  own 
lines  of  merchandising  or  of  ship  operating  were  not  necessarily 
fitted  to  be  successful  underwriters  and  many  of  these  companies 
conducted  by  insurance  amateurs  inevitably  went  into  liquidation. 

Theory  Sound  in  Principle. — That  the  theory  is,  however, 
sound  in  principle  and  when  applied  on  conservative  business  lines 
leads  to  a  safe  and  desirable  method  of  providing  insurance 
protection,  is  clearly  evidenced  by  the  successful  operation  of  a 
number  of  these  companies  through  a  long  period  of  years.  It 
is  true  that  all  but  one  of  the  mutual  marine  companies  has  now 
been  liquidated,  but  this  is  owing  to  the  change  of  business 
methods  in  the  country,  rather  than  to  any  fault  in  the  system. 
The  continued  success  and  prosperity  of  the  remaining  company, 
standing  as  it  does  in  the  very  forefront  of  the  American  marine 
market,  is  the  best  evidence  of  the  fact  that  even  in  a  changed 
business  world,  the  theory  of  conducting  insurance  for  the  benefit 
of  the  policy  holder  rather  than  for  the  pi-ofit  of  stockholders 
makes  a  strong  appeal.  Furthermore,  a  company  responsible  to 
its  policy  holders  alone,  occupies  a  position  of  independence 
in  the  marine  market,  which  has  a  salutary  effect  in  preventing 
rate  increases  made,  not  because  of  the  increased  cost  of  insur- 
ance, but  rather  to  bring  added  profit  to  invested  capital. 

Method  of  Organization. — The  nmtual  system  then  being  an 
important  element  in  the  American  marine  market,  a  brief  out- 
line of  its  method  of  organization  will  be  of  interest.  The  original 
capital  with  which  the  mutual  companies  began  business  was 
furnished  by  the  merchants  and  shipowners  who  organized  them. 
These  men  did  not  advance  cash  but  gave  notes  to  the  companies 
which  were  negotiated  and  furnished  the  working  capital.  As 
the  merchant  insured  risks  with  his  company  and  the  premiums 
written  exhausted  the  amount  of  the  original  note,  a  new  one 
was  given  adequate  to  cover  the  premium  on  risks  which  the 
merchant  or  shipowner  anticipated  insuring  during  the  following 
six  months.  When  a  sufficient  amount  of  these  original  notes 
were  in  hand  to  permit  the  commencement  of  business,  the  com- 
pany was  organized  by  the  election  of  trustees  charged  with  the 
stewardship  of  the  funds  of  the  organization.  These  trustees 
in  turn  elected  administrative  officers  who  were  charged  with 
the  operation  of  the  enterprise.     On  the  skill  and  ability  of  these 


354  M.\h'L\K  IXSl'ItANCK 

men  tlic  success  or  fuilurc!  of  the  coinpaiiy  depended.  It  is 
:ipi)!irent  that  in  a  hazardous  enter])rise  such  as  marine  under- 
writing, men  operating  a  mutual  company  whose  judgment 
of  risks  would  be  swayed  by  personal  consideration  of  the  in- 
dividual member  of  the  company  offering  the  risk,  could  quickly 
wreck  the  enterprise.  The  success  of  these  companies  rested  in 
part  on  the  selection  of  the  better  risks  which  the  merchants  had  to 
offer,  less  desirable  ones  ])eing  placed  by  them  in  the  open  market. 
Distribution  of  Earnings.  Scrip  Certificates. — After  a  surplus 
conuuensurate  witli  the  size  of  the  enterprise  had  been  ac- 
cumulated, the  question  of  the  division  of  profits  among  the 
policy  holders  became  of  interest.  It  was  not  deemed  prudent 
that  the  earnings  of  these  organizations  should  be  distributed 
as  this  would  immediately  impair  the  security  behind  the  policies 
issued,  so  tlie  plan  of  dividing  the  profits  into  shares  but  of  tem- 
porarily withholding  payment  thereof  was  adopted.  This  was 
accomplished  in  the  following  manner.  When  the  profits  of  the 
calendar  year  were  determined,  the  trustees  of  the  company  de- 
cided what  proportion  should  be  turned  back  to  the  assured. 
This  amount  being  determined,  was  usually  expressed  as  a  fixed 
percentage  of  the  net  terminated  premiums  of  the  preceding 
year.  The  share  to  which  each  policy  holder  was  entitled  was 
determined  by  appljdng  this  percentage  rate  to  the  net  terminated 
premiums  of  the  particular  assured.  Net  terminated  premiums 
represent  those  on  risks  which  have  run  off  by  the  last  day  of 
the  preceding  year,  less  returns  of  premiums  and  cancellations. 
For  the  amount  of  profits  so  determined  a  so-called  Scrip  cer- 
tificate was  issued  which  was  signed  b}'^  the  President  and  the  Sec- 
retary of  the  Company.  It  certified  that  the  assured,  his  heirs, 
administrators  or  assigns  were  entitled  to  so  many  dollars  of  the 
earnings  or  profits  of  the  said  insurance  company,  the  certificate 
to  be  redeemable  at  the  pleasure  of  the  trustees  of  the  company, 
and  to  bear  interest  in  the  interim  at  a  rate  not  to  exceed,  say 
six  percent.  It  was  further  recited  in  the  certificate  that  under 
certain  circumstances,  the  certificates  could  be  recalled  and 
cancelled  in  whole  or  in  part.  These  scrip  certificates  found  a 
read.y  sale  in  the  security  market,  their  value  and  salability 
depending,  of  course,  on  the  financial  standing  of  the  company 
issuing  them.     These  documents  thus  became  a  liability  of  the 


BROKERS.     MUTUAL  COMPANIES  355 

company,  except  in  so  far  a.s  they  could  be  reduced  or  cancelled  if 
the  company  became  financially  embarrassed,  but  the  company 
retained  as  working  capital  the  profits  represented  by  these 
certificates  until  they  were  redeemed. 

Redemption  of  Scrip. — After  several  annual  issues  of  these 
scrip  certificates  had  been  made,  it  was  customary  for  the  trustees 
of  the  company  to  order  the  redemption  of  the  oldest  issue,  the 
certificates  being  surrendered  to  the  company  in  exchange  for 
cash  equal  to  their  face  value.  From  the  time  the  annual 
redemption  of  certificates  commenced,  the  new  issue  of  scrip 
which  became  a  liability  of  the  company  would  be  offset  in  part 
at  least  by  the  redemption  of  a  previous  issue  which  thus  ceased 
to  be  a  liability  of  the  company.  If  the  volume  of  business  of  a 
company  varied  little  from  year  to  year  and  the  underwriting 
profits  were  moderately  uniform,  it  is  obvious  that  the  assets 
and  liabilities  of  a  mutual  company  would  vary  little  from  year 
to  year.  If,  however,  the  business  showed  a  constant  increase 
from  year  to  year  and  the  percentage  of  profit  remained  uniform, 
the  assets  of  a  company  would  grow,  since  the  new  issue  of  scrip 
would  naturally  be  larger  than  the  issue  redeemed.  Further- 
more, prudence  would  require  that,  with  the  expansion  of  busi- 
ness, there  be  a  corresponding  addition  to  the  safety  fund  known 
as  surplus  or  undivided  profits. 

Policy  Holders  not  Subject  to  Assessment.— The  policyholders 
in  a  mutual  marine  company  are  not  subject  to  assessment  if  the 
company  meets  with  reverses,  their  sole  loss  in  such  case  being 
the  wiping  out  of  these  divided  but  undistributed  profits  rep- 
resented by  the  scrip  certificates.  Of  course,  if  the  policy 
holder  has  transferred  his  scrip  certificate  such  loss  would  fall 
on  the  present  holder  of  the  security.  The  profits  of  a  mutual 
company,  it  will  be  observed,  are  not  divided  on  the  basis  of  the 
individual  policy,  but  on  the  results  of  the  entire  transactions 
of  the  company.  The  company  reserves  the  right  to  withhold 
the  issuance  of  scrip  to  any  policy  holder  who  is  in  default  in 
the  payment  of  premiums,  so  that  this  method  of  dividing  profits 
furnishes  in  this  respect  an  added  protection  to  the  company. 
Mutual  companies  are,  of  course,  subject  to  the  same  state  con- 
trol as  are  the  stock  companies,  so  that  any  danger  of  misfeasance 
on  the  part  of  trustee  or  officer  is  reduced  to  a  mininnnn. 


(•ii.vi>'n:H  22 

OFFICE    ORGANIZATION.     THE    ANNUAL    STATEMENT 

Departmental  Organization. — Young  men  in  entering  a  marine 
insurance  oflice  to  begin  tiieir  chosen  life  work  are  quite  apt, 
after  a  short  preliminary  training,  to  be  placed  in  some  depart- 
ment where  they  may  remain  for  several  years.  They  become 
expert  in  the  work  of  that  one  department  but  too  often  lose 
sight  of  the  relation  which  their  particular  work  bears  to  the 
business  as  a  whole.  They  thus  become  mere  cogs  in  a  machine, 
rather  than  men  who  see  their  particular  work  as  an  essential 
and  integral  part  of  the  business  as  a  whole.  It  would  therefore 
seem  pertinent  to  sketch  in  outline  at  least  the  organization  of  a 
marine  underwriting  office,  so  that  those  engaged  in  the  business, 
who  are  for  tiie  present  working  in  what  seen:is  to  be  a  rut,  may 
receive  an  insight  into  the  work  of  each  particular  department, 
and  thus  be  able  by  diligent  study  to  prepare  themselves  for 
more  important  responsibilities.  The  accompanying  chart 
will  give  some  idea  of  the  organization  of  a  marine  insurance 
company,   showing  the   relation  of  the  various   departments. 

Purpose  of  Records. — The  names  by  which  individual  de- 
partments are  called  in  this  discussion  may  not  be  those  used  in 
every  insurance  office.  However,  the  duties  described  are  the 
essential  steps  in  the  passage  of  a  risk  through  the  office  from  the 
time  it  is  accepted  by  the  underwriter,  until  in  the  event  of  loss, 
claim  is  made  and  paid  under  the  policy  of  insurance.  The 
records  prepared  by  these  departments  are  necessary  to  properlj' 
account  for  particular  phases  of  the  business,  and  are  so  coor- 
dinated as  to  show  the  operating  results  of  the  company  as  a 
whole,  as  set  forth  in  the  annual  reports  which  must  be  made  to 
the  insurance  departments  of  the  various  states. 

Organization  Divided  into  Three  Sections. — The  conduct  of 
a  marine  insurance  office  may  be  divitled  into  three  executive 
functions,  those  of  underwriting,  loss  adjusting  and  accounting 
and  financial  management.     Controlling  these  three  executive 

356 


OFFICE  ORGAN IZ A  TION 


357 


divisions  are  the  officers  of  the  company,  each  specializing  in 
and  charged  with  the  conduct  of  some  particular  part  of  the 
company's    activities,    these    men    being    in    turn    responsible 


\ 

/ 

— 

Stock- 
Uolders 

or  bcripholdera 

Directors 

or 
Trustees 

Y 

President 

Corrcapon- 

dence 

Agency 

Dept 

\ 

:^ 

^  . 

s 

r 

^ 

juderwritiaj 
Vice-Prest 

Loss 
Vice- 
President 

Secty 

or 

Treasurer 

- 

Stock  or 
Scrip 

Transfer 
Dept. 

1 

\ 

1 

Inspection 

Dnderwritinf 

Appraising 

Loss 
Adjusting 

Invest- 
ments 

t 

/ 

Liue 

or 
Excess 

Statist- 
ical 

■ 

' 

t 

Policy 

or 

Certificate 

«- 

Keconl 

V' 

Billing  & 
Collecting 

Cashier 

t 

Accounting; 
Dept 

t 

Annual 
Statement 

through  the  chief  executive  to  the  trustees  or  directors  of  the 
company. 

Underwriting  Department. — Risks    when    presented    to    the 
company   by   a    broker  or   assured   arc   considered   by  one  of 


358  MARINE  J XSrUAXCM 

tlu!  underwriting  oflicers  or  by  .some  niemi)ci*  of  Llie  staff,  known 
as  un  underwriter,  who  is  specially  authorized  to  consider  risks 
and  to  make  contracts  of  insurance  with  the  assured.  However, 
l)eforc  tlie  undcrwTiter  can  intellij^ently  consider  the  risk  he  umst 
have  particulars  of  the  canying  vessel,  its  location  and  its  present 
condition.  This  information  he  may  obtain  for  himself  l)y  con- 
sulting the  classification  books  and  the  maritime  lists,  but  it  is 
preferable  to  liave  a  separate  department  for  this  work  known 
as  the  inspection  (le])arfmcnt. 

Inspection  Department. — The  inspection  department  is  usually 
in  charge  of  men  who  have  had  actual  sea  experience  or  who 
have  received  their  preliminary  training  as  ship  or  engine  con- 
structors. Associated  with  them  arc  assistants  who  mark  at  the 
foot  of  the  application  from  the  classification  books  or  from 
the  private  records  of  the  company  particulars  of  the  vessel  sub- 
mitted. The  trained  inspectors  also  advise  the  underwriters  with 
respect  to  the  merits  of  particular  vessels  and  when  necessary 
make  special  surveys  of  vessels  w'hen  doubt  exists  as  to  their 
fitness  for  the  proposed  voyage  or  cargo.  Records  of  casualties 
are  also  kept  in  this  department  so  that  notice  thereof  may  be 
given  to  the  underwriters  who  otherv'ise  might  unwittingly  ac- 
cept lines  on  a  vessel  already  in  trouble. 

Binders. — Receiving  the  application  from  the  inspection 
department  with  the  details  of  the  vessel  noted  thereon,  the 
underwriter  either  accepts  or  declines  the  risk.  If  the  risk  is 
declined  or  if  a  rate  is  quoted  which  is  not  immediately  accepted 
by  the  broker  or  assured,  the  application  is  known  as  an  inquiry 
and  is  placed  on  file  for  future  reference.  If  the  rate  named  is 
acceptable  the  risk  is  bound  and  the  binding  apphcation  or  binder 
starts  on  its  way  through  the  books  of  the  Company.  The  under- 
writing officers  and  the  underwriters  also  negotiate  for  and  draw 
up  forms  of  applications  for  open  policies  which  when  mutually 
acceptable  to  the  company  and  the  assured  become  the  basis  from 
which  the  formal  policy'  is  written. 

Line  or  Excess  Department. — From  the  underwriters  the 
binder  passes  to  the  line  or  excess  department  where  the  risk  is 
entered  under  the  name  of  the  carrying  vessel.  On  the  books  or 
cards  of  this  department  all  risks  are  catalogued  by  separate 
vessels  and  distinct  voyages  of  each  vessel.     These  records  serve 


OFFICE  ORGANIZATION  359 

a  twofold  purpose.  First  by  them  the  total  liabiHty  of  the 
company  on  any  indivitlual  risk  is  shown,  so  that  in  the  event  of 
casualty  it  is  immediately  known  whether  or  not  the  company 
is  interested  and  to  what  extent,  and  secondly  and  of  more  im- 
portance, by  these  records  the  lia])ility  of  the  company  is  con- 
trolled. If  the  clerks  making  these  records  find  that  the  under- 
writers have  assumed  a  larger  amount  than  the  predetermined 
retention  of  the  company,  the  matter  is  reported  at  once  by  them 
to  the  head  of  their  department  who  may  be  charged  with  the 
procuring  of  reinsurance,  or  the  report  may  be  made  to  a  separate 
department,  knowir  as  the  reinsurance  department.  The  head 
of  this  department  on  receiving  notice  of  the  overline,  imme- 
diately endeavors  to  procure  reinsurance  to  reduce  the  line  down 
to  the  company's  ordinary  retention,  if  his  general  instructions 
cover  the  case,  or  if  not,  he  submits  the  particulars  to  one  of  the 
officers  for  special  instructions.  In  an  office  where  several  men 
are  charged  with  the  underwriting  these  line  or  excess  books 
form  a  ready  means  of  learning  whether  the  company's  under- 
writing capacity  on  a  named  vessel  has  been  exhausted.  The 
need  of  promptness  and  accuracy  will  be  apparent  in  the  conduct 
of  this  department.  From  these  books  declarations  of  reinsur- 
ance under  excess  reinsurance  contracts  are  made. 

Customer's  Records. — Having  been  recorded  on  the  line  books 
of  the  company  the  binder  passes  to  the  entry  or  recording  de- 
partment, where  an  entry  is  made  under  the  name  of  the  assured 
and  the  premium  charged  against  the  particular  account.  The 
clerks  making  entries  in  this  way  should  have  access  to  the  office 
copy  of  the  open  policy  so  that,  in  addition  to  making  a  proper 
record  of  the  risk,  they  may  confirm  that  the  risk  as  entered  is  in 
agreement  with  the  terms  and  conditions  of  the  poUcy.  This 
puts  upon  them  a  considerable  burden  but  offers  to  the  entry 
clerk  an  unusual  opportunity  of  becoming  famiUar  with  the 
terms  and  conditions  under  which  various  commodities  are  in- 
sured. In  other  offices  the  binders  are  entered  on  sheets  in 
chronological  order  and  posted  to  another  record  under  the  name 
of  the  assured.  Both  of  these  operations  may  be  performed  in 
one  operation  by  the  use  of  modern  mechanical  accounting 
machines  used  in  connection  with  a  loose-leaf  system.  Whatever 
the  method  of  recording  adopted  in  this  department  the  object 


3fiO  ,u.i/.7A7''  ixsrirwcE 

ill  view  is  to  charge  the  premium  against  the  individual  customer's 
account.  If  the  marine  office  is  merely  an  agency,  particulars  of 
the  customer's  accounts  will  be  furnisluHl  in  more  or  less  detail 
to  the  home  office  and  from  these  the  agent's  balances  are 
calculated. 

Certificate  and  Policy  Departments. — If  a  certificate  of  the 
insurance  is  desired  this  document  is  drawn  by  the  certificate 
clerk  either  before  or  after  the  recording  of  the  risk.  If  the  binder 
be  a  so-called  special  insurance  as  distiiiguislied  from  a  declara- 
tion under  a  floating  policy,  it  may  go  to  a  separate  department, 
known  as  the  policy  department,  the  chief  duty  of  which  is  the 
writing  of  the  pohcies  of  insurance.  These  documents  as  well 
as  the  certificates  of  insurance  are  usually  produced  on  the 
typewriter,  the  head  of  the  department  being  charged  with  the 
responsibility  of  seeing  that  the  documents  as  written  are  in 
accordance  with  the  terms  of  the  binder.  The  larger  part  of  the 
policy  department's  work  is  the  writing  of  the  open  contracts 
issued  by  the  company  and  the  special  policies  issued  on  hull 
risks,  so  that  men  in  this  department  have  an  excellent  opportu- 
nity of  becoming  familiar  with  the  terms  and  conditions  applying 
to  various  kinds  of  risks. 

Collection  Department. — At  the  end  of  each  month  the  billing 
or  collection  department  goes  over  the  record  of  each  assured 
and  prepares  a  statement  of  the  account  for  transmission  to  the 
assured.  The  detail  of  these  statements  is  usually  prepared  in 
the  recording  department  by  the  carbon  process,  the  customer's 
records  as  a  rule  being  in  the  loose-leaf  form  and  typewritten. 
The  collection  department  is  charged  with  the  duty  of  collecting 
the  premiums  due  to  the  company  and  of  following  up  delinquents. 
The  premiums  charged  are  transferred  each  month  to  the 
customer's  ledgers  where  a  record  is  kept  of  premiums  charged, 
premiums  collected,  return  premiums  and  cancellations  allowed 
and  return  premiums  and  cancellations  paid.  When  the  assured 
remits  for  the  premiums  charged,  the  checks  are  dehvered  to 
the  cashier  who  after  properly  crediting  the  various  accounts 
deposits  the  money  in  the  bank.  This  is,  of  course,  the  principal 
source  of  income  of  a  marine  insurance  company.  The  second 
and  less  important  source  of  income  is  that  received  from  invested 
assets,  that  is  dividends,  interest  or  rents. 


OFFICE .  OUdAMZA  TIDN  30 1 

Participating  Companies. — This  in  brief  indicates  the  various 
steps  in  the  passage  of  a  risk  througli  an  insurance  office.  If  the 
company  is  one  which  shares  its  business  with  others  through 
participating  reinsurance,  or  if  ttie  office  is  tliat  of  a  firm  repre- 
senting several  companies,  each  of  which  obtains  a  definite  share 
of  the  risks  accepted,  detailed  records  of  these  risks  will  be  made 
by  some  multigraph  system,  the  share  of  each  participating 
company  being  noted  at  the  foot  of  one  of  the  copies  or  borde- 
reaux as  they  are  known.  These  are  mailed  to  the  main  offices 
of  the  various  participating  companies  who  charge  the  agency 
with  the  premiums  due  and  credit  them  from  time  to  time  as 
remittances  are  received.. 

Loss  Department. — The  loss  department  of  an  insurance  com- 
pany is  operated  for  the  purpose  of  adjusting  and  approving  for 
payment  or  rejecting  claims  made  on  the  company  for  loss  or 
damage.  It  was  observed  that  the  inspection  department  kept 
a  record  of  casualties  in  order  that  the  underwriters  might 
be  informed  of  the  present  conditions  of  vessels  offered  for 
insurance.  The  information  here  recorded  is  again  noted  by  the 
loss  department,  the  amount  at  risk  in  the  particular  casualty 
being  obtained  from  the  line  books  and  shown  in  connection  with 
the  record  of  the  casualty.  As  soon  as  the  facts  of  the  particu- 
lar disaster  are  known  with  a  reasonable  degree  of  accuracy, 
an  estimate  of  the  probable  amount  for  which  the  company 
will  have  to  respond  is  noted  against  the  record  of  the  casualty 
and  this  amount  is  immediately  transferred  to  other  records  as  an 
estimated  liability  of  the  company.  This  liability  remains  until 
after  a  final  adjustment,  the  loss  is  actually  paid,  or  until  after 
the  procurement  of  additional  facts  it  is  determined  that  no 
claim  will  be  made  upon  the  company. 

Appraisers. — The  loss  department  of  a  marine  insurance  com- 
pany usually  consists  of  two  sections.  The  one  is  a  field  force 
and  ordinarily  consists  of  men,  expert  in  the  appraisal  of  damaged 
goods.  They  examine  damaged  property  and  endeavor  to  make 
an  amicable  adjustment  of  the  loss  without  resorting  to  the 
expense  and  uncertainty  of  a  sale  at  public  auction.  If  the 
question  of  ship's  liability  for  the  loss  is  involved  these  appraisers 
usually  call  into  consultation  the  expert  ship  men  from  the 
underwriter's  inspection  department.     If  the  case  is  one  of  hull 


3()2  MA h'l.\ /■;  LXSLKA \(  J'J 

(laiMUKo  these  shij)  expiM'ts  l,;ikc  tlic  place  of  tlic  ajipraiscrs  and 
make  a  survey  of  tlie  <laina}i;e  and  esthiuilc  the  cost  of  restoring 
th(>  vessel  to  its  former  condition. 

Loss  Adjusters. — The  second  section  of  a  loss  department  is 
eon('(>rned  with  the  actual  adjustment  of  loss.  When  claims 
are  presented,  the  loss  adjusters  obtain  the  necessary  documents 
and  proofs  of  loss,  hold  interviews  with  the  assured,  and  after 
procuring  the  essential  facts  in  the  case,  prepare  the  statement  of 
the  loss  and  sul)iuit  it  for  the  approval  of  the  assured.  Usually 
the  men  in  a  loss  department  specialize  in  certain  forms  of  adjust- 
ments, one  man  adjusting  jx-irticular  average  claims  on  cargoes, 
another  such  claims  on  hull,  a  third  total  loss  claims  while  at 
least  one  man  will  be  expert  in  the  subject  of  general  average, 
examining  antl  criticizing  or  approving  these  statements  as  sub- 
mitted by  the  general  average  adjusters.  The  statement  of  loss 
having  been  made  to  the  satisfaction  of  underw-riter  and  assured 
it  is  approved  for  payment  by  the  chief  loss  adjuster  of  the 
company,  who  is  usually  one  of  the  executive  officers.  The 
statement  is  then  presented  to  the  cashier's  department  for 
payment. 

Financial  Department. — The  third  general  division  of  a  marine 
insurance  company,  of  which  the  cashiers  arc  a  part,  is  known  as 
the  financial  department.  This  department  is  charged  with 
the  conduct  of  the  financial  books  of  the  company,  and  all  the 
operations  of  the  company  both  underwriting  and  adjusting,  as 
has  been  indicated,  finally  reach  this  department  to  be  entered 
on  the  financial  ledgers  of  the  company.  The  department  is  also 
charged  with  the  custody  of  the  funds  and  investments  of  the 
company,  the  responsibiUty  resting  on  the  Secretarj^-Treasurer 
of  the  company  who  is  directly  answerable  to  the  chief  executive 
of  the  company  and  through  him  to  the  trustees  or  directors. 

Cashier's  Department. — The  cashier's  department  is  charged 
with  the  duty  of  recording  the  detail  of  all  the  receipts  and  dis- 
bursements of  the  comj)any,  in  such  manner  that  they  can  be 
transferred  in  summarized  form  to  the  books  of  the  accounting 
department.  While  the  detail  in  this  department  is  considerable 
it  is  simplified  by  keeping  separate  records  of  income  and  dis- 
bursement items  and  by  segregating  tl.c  si'ine  into  various  sub- 
classifications.     By  the  use  of  loose-leaf  devices  this  information 


OFFICE  ORGANIZATION  3G3 

may  be  so  tabulated  as  to  be  readily  available  for  the  use  of  the 
accounting  department. 

Transfer  Department. — A  separate  section  of  the  financial 
department  may  be  charged  with  keeping  the  records  of  the 
the  capital  stock  of  the  company  or  of  the  outstanding  scrip  if 
the  company  be  conducted  on  the  mutual  plan.  Here  transfers 
of  the  ownership  of  stock  or  scrip  are  made,  the  old  certificates 
being  cancelled  and  new  ones  issued  in  their  place.  Here  also 
ar(^  made  the  disbursements  of  the  earnings  of  the  company  in  the 
form  of  dividends  on  capital  stock,  or  in  the  payment  of  interest 
on  scrip  or  its  redemption. 

Accounting  Department. — The  accounting  department  receiv- 
ing day  by  day  in  summarized  form  the  results  of  the  financial 
transactions  conducted  by  the  cashiers,  transfers  them  to  the 
financial  ledger,  which  as  a  matter  of  convenience  is  usually  kept 
in  such  form  that  the  results  obtained  will  meet  the  requirements 
of  the  statements  which  must  be  furnished  to  the  various  state 
insurance  departments.  This  financial  ledger  is  usually  under 
the  immediate  control  of  the  auditor  of  the  company,  whose 
position  is  one  of  considerable  responsibility.  Not  only  is  he 
charged  with  the  auditing  of  the  various  accounts  of  the  com- 
pany, but  he  is  also  required  to  be  familiar  with  the  laws  of  the 
various  states  in  which  the  company  is  hcensed  to  do  business  so 
that  the  annual  statements  made  may  conform  strictly  to  the 
special  requirements  of  the  particular  state.  Furthermore, 
the  question  of  taxation  comes  within  his  duties  and  the  various 
problems  created  by  the  multiplicity  of  tax  laws,  city,  state  and 
national  must  be  understood  and  mastered  by  him. 

Agency  Department. — There  will  usually  be  found  in  the  office 
of  a  marine  insurance  company  a  department  charged  with  the 
conduct  of  the  agencies  of  the  company.  This  department  is 
under  the  immediate  supervision  of  one  of  the  officers.  It  may 
also  conduct  such  business  as  is  presented  to  the  company  not  in 
person  but  through  the  mail. 

Statistical  Department. — Another  department,  that  of  statis- 
tics, is  from  the  underwriting  viewpoint  the  most  vital  depart- 
ment in  the  office,  for  here  are  produced  the  figures  which  show 
precisely  the  profit  or  loss  on  the  various  accounts  or  on  the 
various  classes  of  risks  which  the  company  is  insuring.     It  will  be 


364  MARINE  INSURANCE 

observed  that  maiino  underwriting  is  not  strictly  scientific 
in  the  sense  that  hfe  insurance  is.  In  this  latter  branch  of 
insuraiK^c  practice  there  has  l)een  worked  out  in  tlie  mortality 
tables  a  predetcrniincd  iind  accurate  table  of  the  results  which 
may  be  expected  in  the  insurance  of  lives.  The  life  underwriter 
is  dealing  with  conditions  that  are  stable  and  within  reasonable 
limits  subject  to  httle  fluctuation,  perhaps  the  only  undetermined 
factors  in  his  problem  ])eing  the  possibility  of  unusually  heavy 
mortality  through  war,  pestilence  or  some  cataclysm  involving 
a  large  portion  of  the  territory  in  which  he  operates.  But  these 
unusual  conditions  arc  so  rare  as  to  be  almost  negligible. 

Marine  Insurance  Not  an  Exact  Science. — The  marine  under- 
writer on  the  other  hand  is  dealing  with  risks  which  are  not 
effected  by  the  ordinary  stable  conditions  that  are  encountered 
every  day,  but  with  those  frequent  but  nevertheless  disturbed 
conditions  which  are  encountered  on  the  seas.  No  chart  or  table 
can  be  devised  which  will  show  to  a  nicety  how  many  days  will 
be  clear  and  how  many  stormy  or  which  will  measure  the  severity 
and  direction  of  these  storms.  The  marine  underwriter  is  dealing 
with  condition  over  which  the  veil  of  the  future  is  drawn  and  he 
must  rely  on  past  conditions  in  order  to  arrive  at  his  conclusions 
of  what  probably  will  happen  in  the  future.  Furthermore,  owing 
to  the  unusual  physical  conditions  to  which  maiine  risks  are 
subjected,  the  experience  upon  which  the  underwriter  depends 
must  extend  over  a  considerable  period  of  time,  ten  years  perhaps 
being  the  shortest  period  from  which  reasonably  accurate  fore- 
casts can  be  made  of  what  the  future  has  in  store.  Years  of 
great  disaster  seem  to  run  in  cycles  and  after  a  long  period  of 
relative  freedom  from  excessive  losses,  a  period  will  follow  in 
which  disaster  follows  on  disaster  with  incredible  rapidity  caus- 
ing unusual  and  terribly  costly  results  to  marine  underwriters. 

Preparation  of  Statistics. — The  work  then  of  this  statistical 
department  is  to  so  tabulate  the  results  of  the  company's  business, 
that  from  the  results  shown  over  a  considerable  period  of  years 
the  underwriter  can  see  what  the  past  has  revealed  and  make 
some  forecast  of  what  the  future  will  be.  To  this  end  there  must 
flow  into  this  department  full  particulars  of  each  and  every 
risk  accepted  by  the  company  together  with  particulars  of  return 
premiums  and  cancellations.     From  the  loss  department  informa- 


OFFICE  ORGANIZATION  305 

tion  must  be  gathered  of  all  losses  paid,  showing  the  cause  of  loss 
and  other  necessary  information.  This  department  must  also 
furnish  for  statistical  puri)oses  particulars  of  recoveries  made  in 
the  nature  of  salvage  so  that  the  net  loss  results  may  be  obtained. 
A  comparison  of  the  net  premiums  received  and  of  the  net  losses 
paid  will  indicate  the  percentage  of  profit  or  loss  on  the  bare 
underwriting  of  the  company,  whether  this  be  looked  upon  from 
the  viewpoint  of  individual  assured,  kind  of  goods,  routes  of 
trade  or  from  any  other  angle  from  which  it  is  desired  to  analyze 
the  business. 

Deductions. — The  bare  underwriting  result  is  now  further 
reduced  by  a  percentage  of  net  premium  income  calculated  to 
cover  overhead  charges  for  conducting  the  business  including 
items  of  salary,  office  rent,  stationery,  taxes,  brokerage  and  various 
other  expenses  which  are  essential  to  the  conduct  of  a  going  con- 
cern. In  this  manner  the  final  result  of  underwriting  operations 
is  arrived  at.  It  will  have  been  observed  that  no  notice  has  been 
taken  of  the  cost  of  reinsurance  which  a  company  procures  for 
its  own  protection  nor  of  the  recoveries  made  under  such  rein- 
surance. The  reason  for  this  is  that  the  underwriter  seeks  infor- 
mation as  to  the  experience  of  the  business  which  he  writes  com- 
pared with  the  losses  which  he  pays  after  which  is  deducted  the 
expense  of  doing  business.  The  reinsurance  which  he  procures 
does  not  alter  this  experience.  While  it  may,  it  is  true,  increase 
his  net  profits  if  reinsurance  recoveries  exceed  reinsurance  pre- 
mimii  payments,  on  the  other  hand,  if  reinsurance  premium  pay- 
ments exceed  the  recoveries  the  net  profits  of  the  business  will  be 
reduced.  It  will  then  be  apparent  that  in  determining  experience, 
reinsurance  is  an  item  which  can  be  safely  disregarded.  Con- 
sideration of  reinsurance  figures  over  a  long  period  of  years  will 
indicate  whether  or  not  it  has  been  profitable  for  the  company 
to  reinsure  and  may  aid  in  drawing  conclusions  as  to  whether 
or  not  the  company  could  prudently  retain  larger  lines  than 
has  been  the  practice.  As  a  matter  of  pure  experience  on  the 
outcome  of  individual  classes  of  business,  however,  these  figures 
are  of  little  importance.  It  will,  of  course,  be  understood,  that 
in  this  connection  it  would  be  entirely  proper  in  the  case  of  share 
reinsurance,  where  a  company  under  treaty  turns  over  to  other 
underwriters  a  share  of  all  or  of  a  portion  of  its  business,  to  con- 

25 


366  .}f.\h'r\F  rxsT'RANCE 

sider  in  statistical  figures  only  tlie  net  retention  and  tlie  net  loss 
paid,  as  the  expense  of  doinj^  business  must  be  paid  out  of  the  net 
and  not  the  gross  prenduni.  In  such  cases  the  oiiginal  (;onipany 
is  merely  acting  as  a  distributor  of  the  risk,  'i'iie  reinsurance, 
whi(;h  may  be  disregarded,  is  special  or  excess  reinsurance  whicli 
tlie  company  may  jilacc  from  thne  to  time  to  reduce  its  liability. 

Statistics  Must  be  Accurate. — It  is  quite  true  that  the  annual 
income  and  expense  statement  of  the  company  will  indicate 
whether  operations  have  been  profitable  or  otherwise,  but  this 
statement  will  not  point  out  the  strong  or  the  weak  points  in  the 
underwriting  operations  of  the  organization.  The  statistical 
department  alone  can  do  this  by  its  sj'stem  of  analysis,  and  the 
value  of  the  results  thus  produced  will  depend  largely  on  the 
accuracy  of  the  figures  furnished  and  the  ability  by  analysis  to 
sift  thoroughly  the  case  in  question  in  order  to  learn  the  exact 
cause  of  an  unprofitable  outturn  of  any  particular  class  of  risk. 
The  statistical  department  is  the  laboratory  of  the  insurance 
company. 

Annual  Statement. — The  office  routine  does  not  end  here.  One 
further  step  is  necessary.  The  company  must  make  a  report  of 
its  operations  in  detail  to  the  state  in  which  it  is  incorporated  and 
to  every  other  state  in  which  it  has  been  licensed  to  do  business. 
The  state  reports  have  been  partially  standardized  by  the  various 
insurance  departments,  so  that  the  report  made  to  the  state  in 
which  the  company  is  domiciled  will  serve  as  the  basis  of  the 
report  made  to  each  other  state.  The  principal  difference  in  the 
reports  is  in  the  requirements  for  the  make  up  of  reinsurance 
deductions  from  habilities  and  in  that  section  of  the  statement 
referring  solely  to  operations  in  the  particular  state  for  which 
the  report  is  intended.  The  preparation  of  these  reports  never- 
theless requires  no  httle  degree  of  skill  as  the  insurance  laws  of 
the  various  states  are  not  uniform,  and  a  thorough  knowledge 
of  them  is  requisite  in  order  that  the  information  entered  under 
the  various  headings  may  be  reported  in  accordance  with  the 
requirements  of  the  laws  of  the  particular  state  in  question. 

Income  and  Disbursements. — The  purpose  of  the  annual 
statement  to  the  insurance  department  is  to  prepare  a  public 
record  which  will  show  the  transactions  of  the  insurance  company 
in  such  detail  that  the  insuring  public,  by  a  perusal  and  analysis 


OFFICE  ORGANIZATION  367 

of  the  figures,  may  determine  not  only  the  financial  stability  of 
the  organization,  but  also  gain  a  fair  idea  whether  or  not  the 
company  is  being  operated  in  a  conservative  manner.  To  this 
end  various  statements  are  included,  the  first  showing  the  income 
and  disbursement  account  of  the  company.  The  theory  under- 
lying this  section  of  the  report  is  that  the  assets  on  December 
31st  of  the  previous  year  plus  the  income  actually  received  during 
the  year  minus  the  disbursements  actually  made  during  the  same 
period  will  equal  the  assets  at  the  end  of  the  year. 

Assets  and  Liabilities. — Another  section  of  the  report  shows 
the  assets  and  Habilities  of  the  companj'-,  sufficient  detail  being 
given  to  indicate  the  nature  of  the  securities  or  property  in  which 
the  assets  of  the  company  are  invested.  The  liabilities  of  the  com- 
pany are  also  shown  in  sufficient  detail  to  permit  careful  analy- 
sis to  be  made  of  the  statement.  Among  the  items  of  liabilities 
will  be  found  the  reserve  set  aside  for  the  payment  of  estimated 
and  unadjusted  losses,  an  item  of  considerable  importance  in 
the  case  of  marine  companies,  since,  owing  to  the  far-reaching 
scope  of  marine  insurance  considerable  time  often  elapses  between 
the  happening  of  a  loss  and  the  payment  of  the  claim.  Upon 
the  sufficiency  of  this  reserve  depends  in  large  measure  the 
stability  of  the  company.  Another  liability  item  of  considerable 
size  is  the  unterminated  premium  reserve.  The  last  item  under 
the  liabilities  will  be  a  balancing  figure  called  surplus.  This 
item  added  to  the  capital  stock  or  the  amount  of  outstanding 
scrip,  if  the  company  be  mutual,  will  indicate  the  surplus  as 
respects  the  policy  holders.  The  assets  as  shown  in  this  section 
will  equal  the  balance  arrived  at  in  the  statement  of  income  and 
disbursements,  by  means  of  adding  to  the  assets  on  hand  at  the 
beginning  of  the  year,  the  total  income  actually  received  during 
the  current  year  and  deductmg  from  the  total  thus  obtained 
the  total  disbursements  actually  made  during  the  same  period. 
There  is  added  to  this  statement  of  ledger  assets,  as  it  is  called, 
certain  other  items  called  non-ledger  assets  which  represent  cred- 
its due  to  the  company  but  not  yet  paid,  such  as  accrued  interest 
and  rents,  the  difference  between  the  book  and  market  value  of 
securities  and  similar  items.  From  the  total  assets  thus  obtained 
are  deducted  other  items  such  as  company  stock  owned,  out- 
standing bills  overdue,  unsecured  loans,  book  value  of  securities 


368  MAh'IM':  INSURANCE 

over  market  value  and  similar  items,  the  not  result  representing 
the  admitted  assets  of  the  company. 

Underwriting  and  Investment  Exhibit. — A  numher  of  general 
inlerrogatoi'ies,  in  relation  to  the  risks  underwritten  hy  the  com- 
pany and  the  nature  of  llie  premiums  received  follow,  together 
with  a  statement  of  the  business  actually  written  in  the  state  to 
which  the  report  is  being  made.  There  is  then  presented  what  is 
called  the  underwriting  and  investment  exhibit,  which  is  in  effect, 
a  profit  and  loss  statement  showing  in  detail  the  increase  or 
decrease  in  the  surplus  of  the  company  during  the  year.  In  this 
statement  the  net  increase  or  decrease  in  surplus  is  determined  by 
considering. 

1.  Gain  or  loss  from  underwriting. 

2.  Gain  or  loss  from  investments. 

3.  Gain  or  loss  from  miscellaneous  causes. 

From  this  statement  is  indicated  the  percentage  of  losses  in- 
curred to  premium  earned,  investment  expenses  incurred  to 
interest  and  rents  earned,  and  also  the  percentage  of  general 
expenses  incurred  to  income  received. 

Schedules. — The  remainder  of  the  state  report  consists  of 
schedules  showing  in  detail  the  investments  of  the  company  at 
the  end  of  the  year  and  the  income  therefrom,  together  with 
sales  and  purchases  of  same  dm'ing  the  year,  the  bank  balances  of 
the  company  and  the  interest  received  thereon  and  similar  details 
of  asset  items  appearing  in  the  statement  of  assets  as  total  figures 
only.  However,  the  public  is  not  altogether  dependent  on  these 
state  reports  for  its  information  as  to  the  stability  of  insurance 
companies.  The  state  department  not  only  carefully  peruses  and 
analyzes  the  statements  furnished,  but  from  time  to  time  makes 
thorough  individual  examinations  of  the  companies,  verifying  the 
accuracy  of  all  the  items  entered  in  the  reports,  and  the  truth  of 
any  statements  made  therein.  Furthermore  the  question  of 
loss  and  premium  reserves  is  a  particular  object  of  attention 
and  if  necessary  the  company  is  required  to  increase  these 
liabilities. 

Publicity  in  Insurance. — Any  detailed  discussion  of  the 
accounting  pioblems  involved  in  the  conduct  of  an  insurance 
company  is  not  within  the  province  of  this  book,  nevertheless 
the  annual  statements  and  the  special  reports  to  the  insurance 


OFFICE  ORGANIZATION  309 

departments  are  well  worthy  of  study  in  that  they  reveal  to  the 
assured  and  to  the  broker,  as  well  as  to  the  underwriter  who  may 
be  seeking  reinsurance,  an  accurate  idea  of  the  stability  of  the 
various  companies  and  of  the  security  back  of  the  policies  which 
they  issue.  The  modern  idea  of  publicity  so  pervades  the 
business  of  insurance  and  the  standing  of  the  companies  is  so 
clearly  set  forth  in  these  records,  which  are  open  to  the  public, 
that  there  would  seem  to  be  no  reason  why  an  assured  who  cares 
to  inform  himself  should  not  avoid  the  acceptance  of  insurance 
in  companies  of  doubtful  stability. 


APPENDIX  A 

StANPAUI)    Al'ri.IlATION    l'"ul(M    I'SKI)    1  .\    l*I,A<I\(i    Sl'KflU,    I{lSKS   ON'    C'AltflO 

CARGO  APPLICATION 


CERTIFICATES  REQUIRED 

(Ind.cair  by  clxrtk) 

Original 

Duplicate 

Triplicate 

Application  for  Insurance  is  herehy  made  hv 

In  name  of 

Lou,  if  anil,  pat/uhle  to 

For  the  amount  ituttii  below,  on 

Valutd  at 

At  and  from  — 


SPECIAL  RISK 


Provisional 


[dndi. 


Definite         I  ^>>' ^»>«''> 


P./fcj  A^o 

Certificate  No.- 


--■ ■  a»  Bruisers, 

account  of  whom  tt  may  concern. 
or  orjer. 


(Mc..,.apo;.<>k. 


Subject  to  printed  clauses  on  the  back  hereof  {  unless  otherwise  proeided  hereon)  and  other  Special  Condilions  as  follows: 


Amount  under  decl^  $ 

Amount    on   decJf    $  ■   - 

Brokerage  ■ 

Ne.o  Vort 


Rate 
Rate 


■  pet  cent, 
per  cent. 


per  cent. 
191 


Binding — 

Binding — 

{Fiinil  Slllt) 

370 


( 3»«c*  $mtn^  l«  catcclMMS  rf  McaiuaU 


/or  Company 
for  Applicant 


APPENDIX  371 


Appendix  A  coiilinned 

1.  Warranted  free  of  capture,  seizure,  arrest,  restraint,  or  detainment,  and  the 
consequences  thereof  or  of  any  attempt  thereat,  {piracy  excepted),  and  also 
from  all  consequences  of  hostilities  or  war-like  operations,  whether  before  or 
after  declaration  of  war. 

2.  Warranted  free  of  loss  or  damage  caused  by  strikers,  locked  out  workmen  or 
persons  taking  part  in  labor  disturbances  or  riots  or  civil  commotions. 

3.  General  Average  and  Salvage  Charges  payable  according  to  Foreign  Statement 
or  per  York-Antwerp  Rules  if  in  accordance  with  the  contract  of  afTreightment. 

4  Held  covered,  at  a  premium  to  be  arranged,  in  case  of  deviation  or  change  of 
voyage  or  of  any  omission  or  error  in  the  description  of  the  interest,  vessel  or 
voyage. 

5.  Including  (subject  to  the  terms  of  the  Policy)  all  risks  covered  by  this  Policy 
from  shippers  or  Manufacturers'  warehouse  until  on  board  the  vessel,  during 
transhipment  if  any,  and  from  the  vessel, whilst  on  quays,  wharves  or  in  sheds 
during  the  ordinary  course  of  transit  until  safely  deposited  in  consignees'  or 
other  warehouse  at  destination  named  in  Policy,  except  that  in  respect  to  ship- 
ments to  the  River  Plate,  the  risks  under  this  insurance  shall  cease  upon  arrival 
at  any  Shed  (transit  or  otherwise).  Store,  Custom  House  or  Warehouse,  or  upon 
the  expiry  of  ten  (10)  days,  subsequent  to  landing,  whichever  may  first  occur 

6.  Including  risk  of  craft,  raft  and/or  lighter  to  and  from  the  vessel  Each  craft, 
raft,  and/or  lighter  to  be  deemed  a  separate  insurance.  The  Assured  are  not  to 
be  prejudiced  by  any  agreement  exempting  lightermen  from  liability. 

7.  Including  all  liberties  as  per  contract  of  affreightment.  The  Assured  are  not  to 
be  prejudiced  by  the  presence  of  the  negligence  clause  and/or  latent  defect  clause 
in  the  Bills  of  Lading  and/or  Charter  Party.  The  seaworthiness  of  the  vessel  as 
between  tlie  Assured  and  the  Assurers  is  hereby  admitted. 

8.  Warranted  not  to  cover  the  interest  of  any  partnership,  corporation,  association 
or  person,  insurance  for  whose  account  would  be  contrary  to  the  Trading  with 
the  Enemy  Acts  or  other  statutes  or  prohibitions  of  the  United  States  and/or 
British  Governments. 


E    ii 


{Reverse  side  of  standard  (ippliailion  form) 


APPENDIX  B 


Standard  Foum  Uskd  in  Requkstino  Retuhn  Puemium,  Eitueu  Because  of 
Cancellation  ok  Reduction  of  Risk 


.ISlfA 


Please 


osno«l 
redoes 


RETURN    PREMIUMS 

CANCELLATION-REDUCTIONS 


New  York 191 

.  Insurance    Co (Agents) 

.  Date  effective 


Insurance  on per. 


<tl" 


»1) 


Bacis  upon  which  return  premium  to  be  made 

(tt  "Id  •ccordaoce  with  policy  coDdltl 


lUte  ottacrwiK  clearly  lUtc  b««li  i 

Tdenttficatton  of   Original    Insurance 

(Give  fall  identification  of  Risk.         If  -open"  to  atatc.) 


Amooot  lotured 


Ouderwrner 

Calculation  of   Return   Premium 


Rate 

Premium 

Brokerage 

Net  Premium 

NET 

RETURN 

Hats  op 
RrrtlKM 

Return  Premium 

Less  B'kge. 

Net  Return 
Premium 

Amount  cancelled  $• 

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APPENDIX 


375 


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••-■AlfVIUNO^  1HI  01  (HMIVIMO?  MITVin  OMIHJJUilV  OMKMVXSHUMXOM 


APPENDIX 


379 


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380 


APPENDIX 


381 


{Contiimcd  from  page  380) 


without  prejudice  to  tliis  insurance:  to  the  charges  whereof  the  said  insurance  company  will  contribute  according  to  the  Rate  and 
Quantity  of  the  sum  herein  Assured.  And  it  is  expressly  declared  and  agreed  that  no  acts  of  the  insurer  or  insured  in  recovering, 
saving  or  preserving  the  property  insured  shall  be  considered  as  a  waiver  or  acceptance  of  abandonment.  With  leave  to  sail  with-  or 
without  pilots,  to  tow  and  be  towed,  and  to  assist  vessels  and/or  craft  in  all  situations  and  to  any  e.vtent.  .ind  to  go  on  trial  trips. 
With  liberty  to  discharge,  exchanj;*  and  take  on  board  goods,  specie,  passengers,  and  stores,  wherever  the  Vessel  may  call  at  or 
proceed  to,  and  with  liberty  to  carry  goods,  live  cattle,  &c.,  on  deck  or  otherwise,  but  warranted  free  of  any  claim  in  respect  of  deck 
cargo.  Including  all  risks  of  docking,  undocking,  changing  docks,  or  moving  in  harbour  and  going  on  or  off  gridiron  slipways,  grav- 
ing docks  and/or  pontoon  or  dry  docks  as  often  as  may  be  done  during  the  currency  of   this  Policy 

CLAUSES  FOR  BUll-DERS'  RISKS 


yards  and  docks  o( 
II  risk  while  in  Irai 
ver  the  may  be  lying, 


and  breakage  of  the 


lit  to  and  from  1 
also  all  risks  of  lo: 
iny   cause    wbaleve 


including   fi 
itenal 
quay 

damage  ih 


uildings.    Work. 


and  all    risks  of  la 


With    \e»y 

With    lea^ 
for  loss  of  or 


case  of  /ailun 
incurred  in  coi 
erage    payable 


ired,  and  all  risks  wl 

oceed  to  and  from  iS 
^ntoons  during  the  c 
■e  guns  and    torpcdoe 


ritera   to  bear   all   subsequent 


as  per  foreign 
in  tho  t^ 
Vessel  h' 


he   Average  be  particula      ..    „ 

rat   Average  and   Salvage,  charges   as   per    foreign    custom,    payable 

rnt,  and/or  per  York-Antwerp  rules,  if  required;   and 

ge,  towage,  or  other  assistance  b^ng  rendered   to   the 


like  prop- 


of  the 


I  thereby  incurred  o 
are  lo  blame,  then,  unless  the  liability  of  tl 
such  Vessels  becomes  limited  by  law,  claimi 
shall  be  seuled  od  the  principle  of  Cfoss  Lij 
^ach  Vessel  had  been  compelled  to  pay  to 
proportit 


under    the    Collis 
iLiTiES.  as^f   the 


such   V. 
may    \ 


bav 


by 


bee 


•-half  1 


()ropcrIy     alio 
the  assured 


of  the  latter's  damages  ai 
ling  the  balance  or  suit 
f  such  collision. 
cs  involved  in  this  claust 
:  the  property,  in  part  oi 
responsibility    and   amount 


And    it    is    further    agreed    tha 
shall   apply    to   the    case    where    both    Vessels 
in    whole,   of  the   same  owners,  all    questions 

of  liability  as  between  the  two  Ships  being  I  _ „,, 

Arbitrator,  if  the  parties  can  agree  upon  a  single  Arbitrator,  or  failing' such 
agreement,  to  the  decision  of  Arbitrators,  one  to  be  appointed  by  the 
managing  owners  of  both  Vessels,  and  one  to  be  appointed  by  the  majority 
In  amount  of  Underwriters  interested  in  each  Vessel:  the  two  Arbitrators 
chosen  to  choose  a  third  Arbitrator  before  entering  upon  the  reference. 
The  terms  of  the  Arbitration  Act  of  1889  to  applv  to  such  refe--^"'-*.  anH 
1  single,  or  of  any  two  of  such  three  Arbit 
be  hnal  and  binding. 


and    the 


I  the 


ed   by  any  Vessel   belo 

hereby  agreed  that  the  value  ot  such  servr 
non  ownership  of  the  Vessels)  shall  be  as 
■  provided  for  under  "Colli! 


ired,    shall 


rded. 


applicable 


I  Cla 


hereby 
an  additional  premium 
nachinery,    apparel,    or 


irgc    under 
in   the  event  ot    deviation   to  be  held  covered   , 
to   be  hereafter   arranged. 

To  cover    while    building    alt    damage    to    hull, 
furniture,    caused    by    settling    of    the    stocks,    or    tailure    or    tircakage    ot 
shores,  hlocVing  or  staging,    or   of  hoisting  or  other   gear,  either  betorc  or 
after   launching   and    while    fitting  out. 

It    is    agreed    that    any    changes    of    interest    in    the    steamer    hereby 
affect    the  validity   of  this  policy. 

pressly  declared  and  agreed  that  no  acta  of  the  Insurer 
overing,  saving,  or  preserving  the  property  insured  shall 
1   waiver   or  acceptance  of  abandonment. 

damage    to   the    hulC 
I'ners,     Engineers     or 
eakage    of    shafts,    or  ■ 
,    or    from    explosions 
r   causes,    arising  either    on    shore   or   otherwise,   causing    loss   of   or 
to  the  property   hereby    insured,   provided    such   loss  or   damage    has 
nttf   resulted    from    want    of   due    diliffence  by    the   Owners    of   the    Ship    or 
•ny  of  them,  or  hy  the  Manager,  and  to  cover  all  risks  incidental  to  steam 
graving  docks. 

COLLISIOr^  CLAUSE. 


iniured 

shall 

not 

And    it    i 

or  Irsu 

fd,   i 

be   com 

dcrec 

as 

.      Tbi 

1    Ins 

u-an 

pilots,    c 

r    Ihf 

ouch 

through 

any 

ater 

legligfsxice 


injury 


aavtgati 


pointed  as  above 

This  clous, 
liable  to  pay, 
powers,  or  for 


shall  also  extend  i 
or  shall  pay  for 
injury  to  harbour. 


\  which  the  Assured  may  become 
vol  of  obstructions  under  statutory 
rtes.  piers,  stages,  and  similar  struc- 


thio^s^ 


PROTECTION  AND  rXDESIMTY  CLAUSE. 

Tt  is  fui^her  agreed  that  if  the  Assured  shall  by  rearon  o'  h' 
it  in  the  insured  ship  become  liable  to  pay  and  shall  pay  an,  su 
s  in  respect  of  any  responsibility,  claim,  demand,  damares,  a 
-rising  from  or  occasioned  by  any  of  the  following  mati* 
ng  the  currency  of  this  policy,  that  is  to  »ay : — 
f  or  damage  lo  any  other  ship  or  boat  or  goods, 
,  or  other  things  or  intere; 
:d    p 


so  far 


cable, 


property 


the  ; 
>r  damage  to 

o:her  fi«d  ? 
inhe 


boat  or    goods,  merchandifl.. 

halsoever  on   board   such    other 

roximately    or   otherwise  by  the   ship  insured    in 

not  covered  by  tbei  running  down  clauae  set  out 

any  goods,  merchandise,  freight  or  other  things 
r  other  than  as  aforesaid  whether  on  board  the 
,  which  may  arise  from  any  cause  whatever, 
any  harbour,  dock  (graving  or  otherwisel,  ilio- 
pier,  quay,  jetty,  stage,  buoy,  telegraph 
ble  thing      "^ ■ 


used. 


#r  to  any  (ood*  < 


of.  . 


Any  : 


tempted 

insured  ship  or  the  cargo  i 
•emove,    or  destroy   the  same. 

im  or  sums  for  which  the  Assured  may  become  liable  or  incur 
loses  not  hereinbefore  specified,  but  which  are  or  have  hereto- 
fore been  absolutely  or  conditionally  recoverable  from  or- undertaken 
by  the  'Liverpool  and  London  Steamship  Protection  Association. 
Limited,  and/or  North  of  England  Protecting  and  Indtnnity  Asso- 
-    -  --     but   excluding  loss   of   life  and    personal    injury. 

issurers    will    pay    the    Assured    such    proportion    of    such    sum 

paid,  or,  which  may  be  .required  to  indemnify   the  Assured    for 

1    their   respective   subscriptions   bear  to  rhe    completed   contract 

f    the   ship  hereby   insured,   and    where   the    liability    of    the    Assured 

h  the  consent  in  writing  of  a  majority   (in  amount) 


These 


And  tt  ts  fitrttier  agreed  that  if  the  Ship  hereby  Insured  shall  eom< 
Into  collision  with  any  other  Ship  or  Vessel,  and  the  assured  shall  ir 
consequence  thereof  become  liable  lo  pay.  and  shall  pay  by  way  of  dam^ 
ages  to  any  otBer  person  or  persons  any  sum  or  sums  not  exceeding  ir 
respect  of  any  one  such  collision  the  value  of  the  Ship  hereby  Insured,  we 
the  assurers,  will  pay  the  assured  such  proportio-a  of  such  sum   or  sums  so  ni 

paid  as  our  subscriptions  thereto  bear  to  the  completed  contract   price  of   the  n; 

Ship  hereby    Insured.      And    in   cases    where   the    liability  of    the    Ship    has  of    the     Unde: 

been  contested,    with   the  consent,    in    writing,    of   a  majority    of  the    under-  «tso    pay   a    lit 

writers  on    the    hull    and^or    machinery    (in  amount),    we   will    also    pay    a        i       inciir  or  be  compelled  I 

NOTWITHSTANDING  THE  FOREGOING,  this  Policy  is:— 

(a)     Warranted  free  froni  any  claim  arising  directly  or  indirectly  under  Workmcns*  Compensation  or  Employers  Liability  Acts 
f  \     u;      *"    }"/        V  S'^'"'°''y  <"■  Common  Law  liability  in  respect  of  accidents  to  any  person  or  persons  whomsoever 
(t)     Warranted  free  of  capture,  seizure,  arrest^  restraint  or  deUinment,  and  the  consequences  thereof  or  of  any  attempt  thereat 
(piracy  excepted),  and  also  from  all  consequences  of  hostilities  or  warlike  operations  wliether  before  or  after  decla- 
ration of  war. 

(c)  Warranted  free  of  loss  or  damage  caused  by  strikers,  locked-out  workmen  or  persons  taking  part  in  labour  disturbances  ot 

riots  or  civil  commotions.  '  ■  ■ 

(d)  Warranted  free  of  loss  or  damage  caused  by  earthquake. 

/^\     Warranted  free  of  any  consequential  damages  or  claims  for  loss  through  delay  however  caused. 

''',  .  y»"anted  free  from  claim  for  loss  or  damage  to  engines,  boilers  and  all  other  materials  while  in  transport  except  in  the 
port  at  which  the  vessel  is  being  built. 

This   policy  shall  not  be  vitiated  by  any  unintentional  error  in  description  of  interest  or  voyage,  provided  the  same  be  communi- 
Tk    '^**'"'",^  *'  soon  as  known  to  the  assured,  and  an  additional  premium  paid  if  required. 

The  words  "Owner"  and  "Assured"  as  used  in  this  policy  shall  be  interpreted  to  mean  either  "Builder"  or  "Owner"  or  both. 
Tie  terms  and  condiiioni  of  this  form  are  lo  be  regarded' ai  substiluted  tor  those  of  the  policy  to  which  U  is  ailached.  the  taller 
being  hereby  waved.  ■'        '      ' 


{Concluded) 


26 


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APPENDIX  E 

MARINE  INSURANCE  ACT,  1906 

[6Edw.  7.     Ch.  41] 


ARRANGEMENTS  OF  SECTIONS 


Marine  Insurance 
Section 

1.  Marine  insurance  defined. 

2.  Mixed  sea  and  land  risks. 

3.  Marine  adventure  and  maritime  perils  defined. 

Insurable  Interest 

4.  Avoidance  of  wagering  or  gaming  contracts. 

5.  Insurable  interest  defined. 

6.  When  interest  must  attach. 

7.  Defeasible  or  contingent  interest. 

8.  Partial  interest. 

9.  Re-insurance. 

10.  Bottomry. 

11.  Master's  and  seamen's  wages. 

12.  Advance  freight. 

13.  Charges  of  insurance. 

14.  Quantum  of  interest. 

15.  Assignment  of  interest. 

Insurable  Value 

16.  Measure  of  insurable  value. 

Disclosure  and  Representations 

17.  Insurance  is  uberrimae  fidei. 

18.  Disclosure  by  assured. 

19.  Disclosure  by  agent  effecting  insurance. 

20.  Representations  pending  negotiation  of  contact, 

21.  When  contrac^t  is  deemed  to  be  concluded. 

387 


:^SS  MARINE  INSURANCE 

The  Policy 
Section 

22.  (^ontract  must  be  embodied  in  policy. 
2.3.    What  policy  must  specify. 
24.  Sijfnature  of  insurer. 
2.').    Voyage  and  time  policies. 
2().   Designation  of  subject-matter, 

27.  Valued  policy. 

28.  Unvalued  policy. 

29.  Floating  policy  by  ship  or  ships. 

30.  Construction  of  terms  in  policy, 

31.  Premium  to  be  arranged. 


32.  Double  insurance. 


Double  Insurance 


Wnrranlies,  itc. 


33.  Nature  of  warranty. 

34.  When  breach  of  warranty  excused. 
3.5.  Express  warranties. 

30.  Warranty  of  neutrality. 

37.  No  implied  warranty  of  nationality. 

38.  Warranty  of  good  safety. 

39.  Warranty  of  seaworthiness  of  ship. 

40.  No  implied  warranty  that  goods  are  seaworthy 

41.  Warranty  of  legality. 

The  Voyage 

42.  Implied  condition  as  to  commencement  of  risk. 

43.  Alteration  of  port  of  departure. 

44.  Sailing  for  different  destination. 

45.  Change  of  voyage. 
40.  Deviation. 

47.  Several  ports  of  discharge. 

48.  Delay  in  voyage. 

49.  Excuses  for  deviation  or  delay. 

Assignment  of  Policy 

.50.  When  and  how  policy  is  assignable. 

51.  Assured  who  has  no  interest  cannot  assign. 

The  Premium 

52.  When  premium  payable. 

53.  Policy  elTected  through  broker. 

54.  Effect  of  receipt  on  policy. 


APPENDIX  389 

Loss  and  Abandonment 

55.  Included  and  excluded  losses. 

56.  Partial  and  total  loss. 

57.  Actual  total  loss. 

58.  Missing  ship. 

59.  Effect  of  transhipment,  &c. 

60.  Constructive  total  loss  defined. 

61.  Effect  of  constructive  total  loss. 

62.  Notice  of  abandonment. 

63.  Effect  of  abandonment. 

Partial  Losses  {Including  Salvage  and  General  A  verage  and 
Particular  Charges) 

64.  Particular  average  loss. 

65.  Salvage  charges. 

66.  General  average  loss. 

Measure  of  Indemnity 

67.  Extent  of  liability  of  insurer  for  loss. 

68.  Total  loss. 

69.  Partial  loss  of  ship. 

70.  Partial  loss  of  freight. 

71.  Partial  loss  of  goods,  merchandise,  &c. 

72.  Apportionment  of  valuation. 

73.  General  average  contributions  and  salvage  charges. 

74.  Liabilities  to  third  parties. 

75.  General  provisions  as  to  measure  of  indemnity. 

76.  Particular  average  warranties. 

77.  Successive  losses. 

78.  Suing  and  labouring  clause. 

Rights  of  Insurer  on  Payment 

79.  Right  of  subrogation. 

80.  Right  of  contribution. 

81.  Effect  of  under  insurance. 

Return  of  Premium 

82.  Enforcement  of  return. 

83.  Return  by  agreement. 

84.  Return  for  failure  of  consideration. 

Mutual  Insurance 

85.  Modification  of  Act  in  case  of  mutual  insurance. 


390  MAh'lM':  I.XSrhWNCE 

Sujjplcnicidnl 
.St).   Ratificat.ion  hy  assured. 

S7.   Irni)lio<l  ol)ligati<)ns  varied  l)y  aKrcnmrnt  or  usage. 
88.   Ilcasonable  time,  &c.  a  question  of  fact. 
80.  Slip  as  evidence. 

90.  Interpretation  of  terms. 

91.  Savings. 

92.  Repeals. 

93.  Commonceinent. 

94.  Short  title. 
Schedules. 


A.D.  1906. 
An  Act  to  codify  the  Law  relating  to  Marine  Insurance. 

iDecembcr  21,  190<j.l 

Be  it  enacted  by  the  King's  most  Excellent  Majesty,  by  and  with  the 

advice  and  consent  of  the  Lords  Spiritual  and  Temporal,  and  Commons,  in 

this  present  Parliament  assembled,  and  by  the  authority  of  the  same,  as 

follows: — 

Marine  Insurance 
Marine  Insurance  Defined. 

1.  A  contract  of  marine  insurance  is  a  contract  whereby  the  insurer 
iiiiiicrtakes  to  indemnify  the  assured,  in  manner  and  to  the  extent  thereby 
agreed,  against  marine  losses,  that  is  to  say,  the  losses  incident  to  marine 
adventure. 

Mixed  Sea  and  Land  Risks. 

2.  (1)  A  contract  of  marine  insurance  may,  by  its  express  terms,  or  by 
usage  of  trade,  be  extended  so  as  to  protect  the  assured  against  losses  on 
inland  waters  or  on  any  land  risk  which  may  be  incidental  to  any  sea  voyage. 

(2)  Where  a  ship  in  course  of  building,  or  the  launch  of  a  ship,  or  any 
adventure  analogous  to  a  marine  adventure,  is  covered  by  a  policy  in  the 
form  of  a  marine  policy,  the  provisions  of  this  Act,  in  so  far  as  applicable, 
shall  apply  thereto;  but,  except  as  bj-  this  section  provided,  nothing  in  this 
Act  shall  alter  or  affect  any  rule  of  law  applicable  to  any  contract  of  insur- 
ance other  than  a  contract  of  marine  insurance  as  by  this  Act  defined. 
Marine  Adventure  and  Maritime  Perils  Defined. 

3.  (1)  Subject  to  the  provisions  of  this  Act,  every  lawful  marine  ad- 
venture may  be  the  subject  of  a  contract  of  marine  insurance. 

(2)  In  particular  there  is  a  marine  adventure  where — 

(a)  Any  ship  goods  or  other  movables  are  exposed  to  maritime  perils. 
Such  propertj-  is  in  this  Act  referred  to  as  "insurable  property;" 
(6)  The  earning  or  acquisition  of  any  freight,  passage  money,  com- 
mission, profit,  or  other  pecuniary  benefit,  or  the  security  for  any 
advances,  loan,  or  disbursements,  is  endangered  by  the  exposure 
of  insurable  property  to  maritime  perils; 


APPENDIX  391 

(c)  Any  liability  to  a  third  party  may  be  incurred  by  the  owner  of, 

or  other  person  interested  in  or  responsil)le  for,  insurable  property, 

by  reason  of  maritime  perils. 

"Maritime  perils"  means  the  perils  consequent  on,  or  incidental  to,  the 

navigation  of  the  sea,  that  is  to  say,  perils  of  the  seas,  fire,  war  perils,  pirates, 

rovers,  thieves,  captures,  seizures,  restraints  and  detainments  of  princes  and 

peoples,  jettisons,  barratry,  and  any  other  perils,  either  of  the  like  kind  or 

which  may  be  designated  by  the  policy. 

Insurable  Interest 

Avoidance  of  Wagering  or  Gaming  Contracts. 

4.  (1)  Every  contract  of  marine  insurance  by  way  of  gaming  or  wagering 
is  void. 

(2)  A  contract  of  marine  insurance  is  deemed  to  be  a  gaming  or  wagering 
contract — 

(a)  Where  the  assured  has  not  an  insurable  interest  as  defined  by 
this  Act,  and  the  contract  is  entered  into  with  no  expectation  of 
acquiring  such  an  interest;  or 
(6)  Where  the  policy  is  made  "interest  or  no  interest,"  or  "without 
further  proof  of  interest  than  the  policy  itself,"  or  "without  bene- 
fit of  salvage  to  the  insurer,"  or  subject  to  any  other  like  term: 

Provided  that,  where  there  is  no  possibility  of  salvage,  a  policy  may  be 
effected  without  benefit  of  salvage  to  the  insurer. 
Insurable  Interest  Defined. 

5.  (I)  Subject  to  the  provisions  of  this  Act,  every  person  has  an  insurable 
interest  who  is  interested  in  a  marine  adventure. 

(2)  In  particular  a  person  is  interested  in  a  marine  adventure  where  he 
stands  in  any  legal  or  equitable  relation  to  the  adventure  or  to  any  insurable 
property  at  risk  therein,  in  consequence  of  which  he  may  benefit  by  the 
safety  or  due  arrival  of  insurable  property,  or  may  be  prejudiced  by  its  loss, 
or  by  damage  thereto,  or  by  the  detention  thereof,  or  may  incur  liability 
in  respect  thereof. 
When  Interest  Must  Attach. 

6.  (1)  The  assured  nuist  be  interested  in  the  subject-matter  insured  at 
the  time  of  the  loss  though  he  need  not  be  interested  when  the  insurance  is 
effected: 

Provided  that  where  the  subject-matter  is  insured  "lost  or  not  lost,"  the 
assured  may  recover  although  he  may  not  have  acquired  his  interest  until 
after  the  loss,  unless  at  the  time  of  effecting  the  contract  of  insurance  the 
assured  was  aware  of  the  loss,  and  the  insurer  was  not. 

(2)  Where  the  assured  has  no  interest  at  the  time  of  the  loss,  he  cannot 
acquire  interest  by  any  act  or  election  after  he  is  aware  of  the  loss. 
Defeasible  or  Contingent  Interest. 

7.  (1)  A  defeasible  interest  is  insurable,  as  also  is  a  contingent  interest. 
(2)  In  i)articular,  where  the  btiyer  of  goods  has  insured  them,  he  has  an 

insurable   interest,   notwithstanding   that  he  might,   at  his  election,   have 


.■^02  MAh'/XK  INSURANCE 

rcjoctcd  (lie  f];'><"ls,  '>•'  li.'ive  tnvitcd  thoin  as  at  the  seller's  li.sk,  bj'  reason  of 
th»>  lat tor's  delay  in  iiiakiiin  deliver^'  or  otherwise. 
Partial  Interest. 

8.  A  partial  interest  of  anj-  nature  is  insurable. 
Reinsurance. 

9.  (1)  'i'lie  insurer  under  a  contract  of  marine  insurance  has  an  insurable 
interest  in  his  risk,  and  may  reinsure  in  respect  of  it. 

(2)   I'ldtiss   the  policy  oth(!r\vise  provides,   the  original  assured  has  no 
rif^iit  or  interest  in  respect  of  such  reinsurance. 
Bottomry. 

10.  The  lender  of  money  on  bottomry  or  respondentia  has  an  insurable 
interest  in  respect  of  the  loan. 

Master's  and  Seamen's  Wages. 

11.  The  master  or  any  member  of  the  crew  of  a  ship  has  an  insurable 
interest  in  respect  of  his  wages. 

Advance  Freight. 

12.  In  the  case  of  advance  freight,  the  person  advancing  the  freight  has 
an  insura]>le  interest,  in  so  far  as  such  freight  is  not  repayable  in  ca.se  of  loss. 
Charges  of  Insurance. 

13.  The  assured  has  an  insurable  interest  in  the  charges  of  any  insurance 
which  he  may  efTect. 

Quantum  of  Interest. 

14.  (1)  Where  the  subject-matter  insured  is  mortgaged,  the  mortgagor 
has  an  insurable  interest  in  the  full  value  thereof,  and  the  mortgagee  has  an 
insurable  interest  in  respect  of  any  sum  due  or  to  become  due  under  the 
mortgage. 

(2)  A  mortgagee,  consignee,  or  other  person  having  an  interest  in  the 
subject-matter  insured  may  insure  on  behalf  and  for  the  benefit  of  other 
persons  interested  as  well  as  for  his  own  benefit. 

(3)  The  owner  of  insurable  property  has  an  insurable  interest  in  respect 
of  the  full  value  thereof,  notwithstanding  that  some  third  person  may  have 
agreed,  or  be  liable,  to  indemnify  him  in  case  of  loss. 

Assignment  of  Interest. 

15.  Where  the  assured  assigns  or  otherwise  parts  with  his  interest  in  the 
subject-matter  insured,  he  does  not  thereby  transfer  to  the  a.ssignee  his 
rights  under  th(^  contract  of  insurance,  unless  there  be  an  express  or  implied 
agreement  with  the  assignee  to  that  effect. 

But  the  provisions  of  this  section  do  not  affect  a  transmission  of  mterest 
by  operation  of  law. 

Insurable  Valtie 

Measure  of  Insurable  Value. 

16.  Subject  to  any  express  provision  or  valuation  in  the  policy,  the  in- 
surable value  of  the  subject-matter  insured  must  be  ascertained  as  follows: — 

(1)  In  insurance  on  ship,  the  insurable  value  is  the  value,  at  the  com- 
mencement of  the  risk,  of  the  ship,  including  her  outfit,  provisions  and 
stores  for  the  officers  and  crew,  money  advanced  for  seamen's  wages. 


APPENDIX  393 

and  other  disbursements  (if  any)  incurred  to  make  the  ship  fit  for 
the  voyage  or  adventure  contemplated  by  the  poUcy,  phis  the  charges 
of  insurance  upon  the  whole: 

The  insurable  value,  in  the  case  of  a  steamship,  includes  also  the 
machinery,  boilers,  and  coals  and  engine  stores  if  owned  by  the  as- 
sured, and,  in  the  case  of  a  ship  engaged  in  a  special  trade,  the  ordinary 
fittings  requisite  for  that  trade: 

(2)  In  insurance  on  freight,  whether  paid  in  advance  or  otherwise,  the 
insurable  value  is  the  gross  amount  of  the  freight  at  the  risk  of  the 
assured,  plus  the  charges  of  insurance: 

(3)  In  insurance  on  goods  or  merchandise,  the  insurable  value  is  the  prime 
cost  of  the  property  insured,  plus  the  expenses  of  and  incidental  to 
shipping  and  the  charges  of  insurance  upon  the  whole: 

(4)  In  insurance  on  any  other  subject-matter,  the  insurable  value  is  the 
amount  at  the  risk  of  the  assured  when  the  policy  attaches,  plus  the 
charges  of  insurance. 

Disclosure  and  Representations 
Insurance  is  Uberrimae  Fidei. 

17.  A  contract  of  marine  insurance  is  a  contract  based  upon  the  utmost 
good  faith,  and,  if  the  utmost  good  faith  be  not  observed  by  either  party, 
the  contract  may  be  avoided  by  the  other  party. 

Disclosure  by  Assured. 

18.  (1)  Subject  to  the  provisions  of  this  section,  the  assured  must  dis- 
close to  the  insurer,  before  the  contract  is  concluded,  every  material  cir- 
cumstance which  is  known  to  the  assured,  and  the  assured  is  deemed  to 
know  everj^  circumstance  which,  in  the  ordinary  course  of  business,  ought 
to  be  known  by  him.  If  the  assured  fails  to  make  such  disclosure,  the  insurer 
may  avoid  the  contract. 

(2)  Every  circumstance  is  material  which  would  influence  the  judgment 
of  a  prudent  insurer  in  fixing  the  premium,  or  determining  whether  he  will 
take  the  risk. 

(3)  In  the  absence  of  inquiry  the  following  circumstances  need  not  be 
disclosed,  namely: — 

(a)  Any  circumstance  which  diminishes  the  risk; 

(b)  Any  circumstance  which  is  known  or  presumed  to  be  known  to 
the  insurer.  The  insurer  is  presumed  to  know  matters  of  com- 
mon notoriety  or  knowledge,  and  matters  which  an  insurer  in  the 
ordinary  course  of  his  business,  as  such,  ought  to  know; 

(c)  Any  circumstance  as  to  which  information  is  waived  bj'  the  in- 
surer ; 

(d)  Any  circumstance  which  it  is  superfluous  to  disclose  by  reason  of 
any  express  or  implied  warranty. 

(4)  Whether  any  particular  circumstance,  which  is  not  disclosed,  be 
material  or  not  is,  in  each  case,  a  question  of  fact. 

(5)  The  term  "circumstance"  includes  any  communication  made  to,  or 
information  received  by,  the  assured. 


;{»)!  .u.i/.7.\a;  i.\srRANCE 

Disclosure  by  Agent  Effecting  Insurance. 

19.  Subject  to  tlic  provisions  of  the  proeediiiK  section  as  to  circumstances 
\\  liicli  need  not  1)C  disclosed,  where  an  insurance  is  effected  for  the  assured 
hy  an  anent,  the  agent  must  disclose  to  the  insurer — 

(a)  Every  material  circumstance  which  is  known  to  himself,  and  an 
agent  to  insure  is  deemed  to  know  every  circumstance  which  in 
the  ordinary  course  of  business  ought  to  be  known  by,  or  to  have 
been  communicated  to,  him;  and 

(6)  Every  material  circumstance  which  the  assured  is  I)ound  to  dis- 
close, unless  it  come  to  his  knowledge  too  late  to  communicate 
it  to  the  agent. 
Representations  Pending  Negotiation  of  Contract. 

20.  (1)  Every  material  representation  made  by  the  assured  or  his  agent 
to  (he  insurer  during  the  negotiations  for  the  contract,  and  l)cfore  the  con- 
tract is  concluded,  must  be  true.  If  it  be  untrue  the  insurer  may  avoid  the 
contract. 

(2)  A  representation  is  material  which  would  influcnco  the  judgment  of 
a  prudent  insurer  in  fixing  the  premium,  or  determining  whether  he  will 
take  the  risk. 

(3)  A  representation  may  be  either  a  representation  as  to  a  matter  of 
fact,  or  as  to  a  matter  of  expectation  or  belief. 

(4)  A  representation  as  to  a  matter  of  fact  is  true,  if  it  be  substantially 
correct,  that  is  to  say,  if  the  difference  between  what  is  represented  and  what 
is  actually  correct  would  not  be  considered  material  by  a  prudent  insurer. 

(5)  A  representation  as  to  a  matter  of  expectation  or  belief  is  true  if  it  be 
made  in  good  faith. 

(6)  A  representation  ma}'  be  withdrawn  or  corrected  before  the  contract 
is  concluded. 

(7)  Whether  a  particular  representation  be  material  or  not  is,  in  each  case, 
a  question  of  fact. 

When  Contract  is  Deemed  to  be  Concluded. 

21.  A  contract  of  marine  insurance  is  deemed  to  be  concluflod  when  the 
proposal  of  the  assured  is  accepted  by  the  insurer,  Avhether  the  jjolicy  be 
then  issued  or  not;  and  for  the  purpose  of  showing  when  the  proposal  was 
accepted,  reference  may  be  made  to  the  slip  or  covering  note  or  other  cus- 
tomary memorandum  of  the  contract,  although  it  be  unstamped. 

The  Policy 

Contract  Must  be  Embodied  in  Policy. 

22.  Subject  to  the  provisions  of  any  statute,  a  contract  of  marine  insur- 
ance is  inadmissible  in  evidence  unless  it  is  embodied  in  a  marine  policy  in 
accordance  with  this  Act.  The  policy  may  be  executed  and  issued  cither 
at  the  time  when  the  contract  is  concluded,  or  afterwards. 

What  PoUcy  Must  Specify. 

23.  A  marine  polic.y  must  sjiecify — 

(1)  The  name  of  the  assured,  or  of  some  person  who  effects  the  in- 
surance on  his  behalf: 


APPENDIX  395 

(2)  The  subject-matter  insured  and  the  risk  insured  against: 

(3)  The  voyage,  or  period  of  time,  or  both,  as  the  ease  may  be,  cov- 
ered by  the  insurance: 

(4)  The  sum  or  sums  insured: 

(5)  The  name  or  names  of  the  insurers. 
Signature  of  Insurer. 

24.  (1)  A  marine  poUcy  must  be  signed  by  or  on  behalf  of  the  insurer, 
provided  that  in  the  case  of  a  corporation  the  corporate  seal  may  be  suffi- 
cient, but  nothing  in  this  section  shall  be  construed  as  requiring  the  sub- 
scription of  a  corporation  to  be  under  seal. 

(2)  Where  a  policy  is  subscribed  by  or  on  behalf  of  two  or  more  insurers, 
each  subscription,  unless  the  contrary  be  expressed,  constitutes  a  distinct 
contract  with  the  assured. 
Voyage  and  Time  Policies. 

25.  (1)  Where  the  contract  is  to  insure  the  subject-matter  at  and  from, 
or  from  one  place  to  another  or  others,  the  policy  is  called  a  "voyage  policy," 
and  where  the  contract  is  to  insure  the  subject-matter  for  a  definite  period 
of  time  the  policy  is  called  a  "time  policy."  A  contract  for  both  voyage  and 
time  may  be  included  in  the  same  policy. 

(2)  Subject  to  the  provisions  of  section  eleven  of  the  Finance  Act,  1901, 
a  time  policy  which  is  made  for  any  time  exceeding  twelve  months  is  invalid. 
Designation  of  subject-matter. 

26.  (1)  The  subject-matter  insured  must  be  designated  in  a  marine 
policy  with  reasonable  certainty. 

(2)  The  nature  and  extent  of  the  interest  of  the  assured  in  the  subject- 
matter  insured  need  not  be  specified  in  the  policy. 

(3)  Where  the  policy  designates  the  subject-matter  insured  in  general 
terms,  it  shall  be  construed  to  apply  to  the  interest  intended  by  the  assured 
to  be  covered. 

(4)  In  the  application  of  this  section  regard  shall  be  had  to  any  usage 
regulating  the  designation  of  the  subject-matter  insured. 

Valued  Policy. 

27.  (1)  A  policy  may  be  either  valued  or  unvalued. 

(2)  A  valued  policy  is  a  policy  which  specifies  the  agreed  value  of  the 
subject-matter  insured. 

(3)  Subject  to  the  provisions  of  this  Act,  and  in  the  absence  of  fraud, 
the  value  fixed  by  the  policy  is,  as  between  the  insurer  and  assured,  conclu- 
sive of  the  insurable  value  of  the  subject  intended  to  be  insured,  whether 
the  loss  be  total  or  partial. 

(4)  Unless  the  policy  otherwise  provides,  the  value  fixed  by  the  policy  is 
not  conclusive  for  the  purpose  of  determining  whether  there  has  been  a 
constructive  total  loss. 

Unvalued  Policy. 

28.  An  unvalued  policy  is  a  policy  which  does  not  specify  the  value  of 
the  subject-matter  insured,  but,  subject  to  the  limit  of  the  sum  insured, 
leaves  the  insurable  value  to  be  subsequently  ascertained,  in  the  manner 
herein-before  specified. 


30(*.  MAHINE  INSflRANCE 

Floating  Policy  by  Ship  or  Ships. 

29.  (I)  A  nojitiiig  i)olicy  is  a  policy  wliich  dcscrihcs  tho  insurance  in 
general  tornis,  and  leaves  tlie  name  of  tiie  ship  or  ships  and  other  jiarticulars 
to  1)C  defined  l)y  subsequent  tleclaration. 

(2)  The  subsequent  declaration  or  declarations  may  be  made  by  indorse- 
ment on  the  policy,  or  in  other  customary  manner. 

(3)  Unless  tlie  policy  otherwise  provides,  the  declarations  must  be  made 
in  the  order  of  dispatch  or  shipment.  The}'  must,  in  the  case  of  goods, 
comprise  all  consignments  within  the  terms  of  the  policy,  and  the  value  of 
the  goods  or  other  property  must  be  honestly  stated,  but  an  omission  or 
erroneous  declaration  maj*  be  rectified  even  after  loss  or  arrival,  provided 
the  omission  or  declaration  was  made  in  good  faith. 

(4)  Unless  the  policy  otherwise  provides,  where  a  declaration  of  value  is 
not  made  until  after  notice  of  loss  or  arrival,  the  policj*  must  be  treated  as 
an  unvalued  policy  as  regards  the  subject-matter  of  that  declaration. 
Construction  of  Terms  in  Policy. 

30.  (1)  A  policy  may  be  in  the  form  in  the  First  Schedule  to  this  Act. 
(2)  Subject  to  the  provi.sions  of  this  Act,  and  unless  the  context  of  the 

policy  otherwise  requires,  the  terms  and  expressions  mentioned  in  the  First 
Schedule  to  this  Act  shall  be  construed  as  having  the  scope  and  meaning  in 
that  schedule  assigned  to  them. 
Premium  to  be  Arranged. 

31.  (1)  Where  an  insurance  is  effected  at  a  premium  to  be  arranged, 
and  no  arrangement  is  made,  a  reasonable  premium  is  payable. 

(2)  Where  an  insurance  is  effected  on  the  terms  that  an  additional  pre- 
mium is  to  be  arranged  in  a  given  event,  and  that  event  happens  but  no 
arrangement  is  made,  then  a  reasonable  additional  premium  is  payable. 

Double  Insurance 

Double  Insurance. 

32.  (1)  Where  two  or  more  policies  are  effected  by  or  on  behalf  of  the 
a.ssured  on  the  same  adventure  and  interest  or  any  part  thereof,  and  the 
sums  insured  exceed  the  indemnity  allowed  by  this  Act,  the  assured  is  said 
to  be  over-insured  by  double  insurance. 

(2)  Where  the  assured  is  over-insured  by  double  insurance — 

(a)  The  assured,  unless  the  policy  otherwise  provides,  may  claim 
paj-ment  from  the  insurers  in  such  order  as  he  may  think  fit,  pro- 
vided that  he  is  not  entitled  to  receive  any  sum  in  excess  of  the 
indenmity  allowed  by  this  Act; 

(b)  Where  the  policy  under  which  the  assured  claims  is  a  valued 
policy,  the  assured  must  give  credit  as  against  the  valuation  for 
any  sum  received  by  him  under  any  other  policy  without  regard 
to  the  actual  value  of  the  subject-matter  insured; 

(c)  Where  the  policy  under  which  the  assured  claims  is  an  unvalued 
policy  he  must  give  credit,  as  against  the  full  insurable  value,  for 
any  sum  received  by  him  under  any  other  policy; 


APPENDIX  807 

(d)  Where  the  assured  receives  any  sum  in  excess  of  the  indemnity 
allowed  by  this  Act,  he  is  deemod  to  hold  such  sum  in  trust  for 
the  insurers,  accordint?  to  their  right  of  contribution  among  them- 
selves. 

Warranties,    &c. 
Nature  of  Warranty. 

33.  (1)  A  warranty,  in  the  following  sections  relating  to  warranties, 
means  a  promissory  warranty,  that  is  to  say,  a  warranty  by  which  the  as- 
sured undertakes  that  .some  particular  thing  shall  or  shall  not  be  done,  or 
that  some  condition  shall  be  fulfilled,  or  whereby  he  affirms  or  negatives  the 
existence  of  a  particular  state  of  facts. 

(2)  A  warranty  may  be  express  or  implied. 

(3)  A  warranty,  as  above  defined,  is  a  condition  which  must  be  exactly 
complied  with,  whether  it  be  material  to  the  risk  or  not.  If  it  be  not  so 
complied  with,  then,  subject  to  any  expre.ss  provision  in  the  policy,  the  in- 
surer is  discharged  from  liability  as  from  the  date  of  the  breach  of  warranty, 
but  without  prejudice  to  any  liability  incurred  by  him  before  that  date. 
When  Breach  of  Warranty  Excused. 

34.  (1)  Non-compliance  with  a  warranty  is  excused  when,  by  reason  of 
a  change  of  circumstances,  the  warranty  ceases  to  be  applicable  to  the  cir- 
cumstances of  the  contract,  or  when  compliance  with  the  warranty  is  ren- 
dered unlawful  by  any  subsequent  law. 

(2)  Where  a  warranty  is  broken,  the  assured  cannot  avail  himself  of  the 
defence  that  the  breach  has  been  remedied,  and  the  warranty  complied 
with,  before  loss. 

(3)  A  breach  of  warranty  may  be  waived  by  the  insurer 
Express  Warranties. 

35.  (1)  An  express  w^arranty  may  be  in  any  form  of  words  from  which 
the  intention  to  warrant  is  to  be  inferred. 

(2)  An  express  warranty  must  be  included  in,  or  \vritten  upon,  the  polic.y, 
or  must  be  contained  in  some  document  incorporated  by  reference  into  the 
policy. 

(3)  An  express  warranty  does  not  exclude  an  implied  warranty,  unless 
it  be  inconsistent  therewith. 

Warranty  of  Neutrality. 

36.  (1)  Where  insurable  property,  whether  ship  or  goods,  is  expressly 
warranted  neutral,  there  is  an  implied  condition  that  the  property  shall  have 
a  neutral  character  at  the  commencement  of  the  risk,  and  that,  so  far  as 
the  assured  can  control  the  matter,  its  neutral  character  shall  be  preserved 
during  the  risk. 

(2)  Where  a  ship  is  expressly  warranted  "neutral "  there  is  also  an  implied 
condition  that,  so  far  as  the  assured  can  control  the  matter,  she  shall  be 
properly  documented,  that  is  to  say,  that  she  shall  carry  the  necessary  papers 
to  establish  her  neutrality,  and  that  she  shall  not  falsify  or  suppress  her 
papers,  or  use  simulated  papers.  If  any  loss  occurs  through  breach  of  this 
condition,  the  insurer  may  avoid  the  contract. 
27 


398  MARINE  INSURANCE 

No  Implied  Warranty  of  Nationality. 

37.  Then;  is  no  iinpliod  wurranty  as  to  the  nationality  of  a  ship,  or  that 
luT  nationality  shall  not  he  changed  during  the  risk. 

Warranty  of  Good  Safety. 

38.  Where  the  subject-matter  insured  is  warranted  "well"  or  "in  good 
safety"  on  a  particular  day,  it  is  sufficient  if  it  be  safe  at  any  time  during 
that  day. 

Warranty  of  Seaworthiness  of  Ship. 

39.  (1)  In  a  voyage  policy  there  is  an  implied  warranty  that  at  the  com- 
mencement of  the  voyage  the  ship  shall  be  seaworthy  for  the  purpose  of 
the  particular  adventure  insured. 

(2)  Where  the  policj'  attaches  while  the  ship  is  in  port,  there  is  also  an 
implied  warranty  that  she  shall,  at  the  commencement  of  the  risk,  be  reason- 
ably fit  to  encounter  the  ordinary  perils  of  the  port. 

(,3)  Where  the  policy  relates  to  a  voyage  which  is  performed  in  different 
stages,  during  which  the  ship  requires  different  kinds  of  or  further  prepara- 
tion or  equipment,  there  is  an  implied  warranty  that  at  the  commencement 
of  each  stage  the  ship  is  seaworthy  in  respect  of  such  preparation  or  equip- 
ment for  the  purposes  of  that  stage. 

(^4)  A  ship  is  deemed  to  be  seaworthy  when  she  is  reasonably  fit  in  all 
respects  to  encounter  the  ordinary  perils  of  the  seas  of  the  adventure  insured. 

(5)  In  a  time  policy  there  is  no  implied  warranty  that  the  ship  shall  be 
seaworthy  at  any  stage  of  the  adventure,  but  where,  with  the  privity  of  the 
assured,  the  ship  is  sent  to  sea  in  an  unseaworthy  state,  the  insurer  is  not 
liable  for  any  loss  attributable  to  unseaworthiness. 
No  ImpUed  Warranty  that  Goods  are  Seaworthy. 

40.  (1)  In  a  policy  on  goods  or  other  movables  there  is  no  implied 
warranty  that  the  goods  or  movables  are  seaworthy. 

(2)  In  a  voyage   policy  on  goods  or  other  movables  there  is  an  implied 
warranty  that  at  the  commencement  of  the  voyage  the  ship  is  not  only  sea- 
worthy as  a  ship,  but  also  that  she  is  reasonably  fit  to  carry  the  goods  or 
other  movables  to  the  destination  contemplated  by  the  policy. 
Warranty  of  Legality. 

41.  There  is  an  implied  warranty  that  the  adventure  insured  is  a  lawful 
one,  and  that,  so  far  as  the  assured  can  control  the  matter,  the  adventure 
shall  be  carried  out  in  a  lawful  manner. 

The  Voyage 

Implied  Condition  as  to  Commencement  of  Risk. 

42.  (1)  Where  the  subject-matter  is  insured  by  a  voyage  poUcy  "at 
and  from"  or  "from"  a  particular  place,  it  is  not  necessary  that  the  ship 
should  be  at  that  place  when  the  contract  is  concluded,  but  there  is  an  implied 
condition  that  the  adventure  shall  be  commenced  within  a  reasonable  time, 
and  that  if  the  adventure  be  not  so  commenced  the  insurer  may  avoid  the 
contract. 

(2)  The  implied  condition  may  be  negatived  by  showing  that  the  delay 


APPENDIX  399 

was   caused    by  circuinstaiicos   known    to    the  insurer  before  the  contract 
was  concluded,  or  by  showing  that  he  waived  the  condition. 
Alteration  of  Port  of  Departure. 

43.  Where  the  place  of  departure  is  specified  by  the  policy,  and  the  ship 
instead  of  sailing  from  that  place  sails  from  any  other  place,  the  risk  does 
not  attach. 

Sailing  for  Different  Destination. 

44.  Where  the  destination  is  specified  in  the  policy,  and  the  ship,  instead 
of  sailing  for  that  destination,  sails  for  any  other  destination,  the  risk  does 
not  attach. 

Change  of  Voyage. 

45.  (1)  Where,  after  the  commencement  of  the  risk,  the  destination  of 
the  ship  is  voluntarily  changed  from  the  destination  contemplated  by  the 
policy,  there  is  said  to  be  a  change  of  voyage. 

(2)  Unless  the  policy  otherwise  provides,  where  there  is  a  change  of  voy- 
age, the  insurer  is  discharged  from  liability  as  from  the  time  of  change,  that 
is  to  say,  as  from  the  time  when  the  determination  to  change  it  is  manifested ; 
and  it  is  immaterial  that  the  ship  may  not  in  fact  have  left  the  course  of 
voyage  contemplated  by  the  policy  when  the  loss  occurs. 
Deviation. 

46.  (1)  Where  a  ship,  without  lawful  excuse,  deviates  from  the  voyage 
contemplated  by  the  policy,  the  insurer  is  discharged  from  liability  as  from 
the  time  of  deviation,  and  it  is  immaterial  that  the  ship  may  have  regained 
her  route  before  any  loss  occurs. 

(2)  There  is  a  deviation  from  the  voyage  contemplated  by  the  policy — 
(o)  ^Vhere  the  course  of  the  voyage  is  specifically  designated  by  the 

policy,  and  that  course  is  departed  from;  or 
(6)  Where  the  course  of  the  voyage  is  not  specifically  designated  by 
the   policy,    but  the  usual  and  customary  course  is  departed 
from. 

(3)  The  intention  to  deviate  is  immaterial;  there  must  be  a  deviation  in 
fact  to  discharge  the  insurer  from  his  liability  under  the  contract. 
Several  Ports  of  Discharge. 

47.  (1)  Where  several  ports  of  discharge  are  specified  by  the  policj', 
the  ship  may  proceed  to  all  or  any  of  them,  but,  in  the  absence  of  any  usage 
or  sufficient  cause  to  the  contrary,  she  must  proceed  to  them,  or  such  of 
them  as  she  goes  to,  in  the  order  designated  by  the  policy.  If  she  does  not 
there  is  a  deviation. 

(2)   WTiere  the  policy  is  to  "ports  of  discharge,"  within  a  given  area,  which 
are  not  named,  the  ship  must,  in  the  absence  of  any  usage  or  sufficient  cause 
to  the  contrary,  proceed  to  them,  or  such  of  them  as  she  goes  to,  in  their 
geographical  order.     If  she  does  not  there  is  a  deviation. 
Delay  in  Voyage. 

48.  In  the  case  of  a  voyage  policy,  the  adventure  insured  must  be  prose- 
cuted throughout  its  course  with  reasonable  despatch,  and,  if  without  lawful 
excuse  it  is  not  so  prosecuted,  the  insurer  is  discharged  from  liability  as 
from  the  time  when  the  delay  became  unreasonable. 


400  MAIflNE  lASURANCE 

Excuses  for  Deviation  or  Delay. 

49.  (1)  Deviation  or  delay  in  proscciiliiij;  the  voyage  eoiilemplated  by 
the  pohcy  is  exeused  — 

(a)  Where  authorized  by  any  special  term  in  the  policy;  or 

(b)  Where  caused  by  circumstances  beyond  the  control  of  the  master 
and  his  employer;  or 

(c)  ^^'herc  reasonably  necessary  in  order  to  comply  with  an  express 
oi  implied  warranty;  or 

(c/)  Where  reasonably  neccssar}-  for  the  safety  of  the  ship  or  subject- 
matter  insured;  or 
(e)   For  the  purpose  of  saving  human  life,  or  aiding  a  ship  in  distress 

where  human  life  may  be  in  danger;  or 
(/)    Where  reasonably  necessary  for  the  purpose  of  obtaining  medical 

or  surgical  aid  for  any  person  on  board  the  ship;  or 
(g)  Where  caused  by  the  barratro\is  conduct  of  the  master  or  crew, 
if  barratry  be  one  of  the  perils  insured  against. 
(2)   When  the  cause  exc\ising  the  deviation  or  delaj'  ceases  to  operate,  the 
shij)  must  resume  her  course,  and  prosecute  her  voyage,  with  reasonable 
despatch. 

Assignment  of  Policy 

When  and  How  Policy  is  Assignable. 

50.  (1)  A  marine  policy  is  assignable  unless  it  contains  terms  expres.sly 
prohibiting  assignment.     It  may  be  assigned  either  before  or  after  loss. 

(2)  W'here  a  marine  policy  has  been  assigned  so  as  to  pass  the  beneficial 
interest  in  such  policy,  the  assignee  of  the  policy  is  entitled  to  sue  thereon 
in  his  own  name;  and  the  defendant  is  entitled  to  make  any  defence  arising 
out  of  the  contract  which  he  would  have  been  entitled  to  make  if  the  action 
had  been  brought  in  the  name  of  the  person  by  or  on  behalf  of  whom  the 
policy  was  effected. 

(3)  A  marine  policy  may  be  assigned  by  indorsement  thereon  or  in  other 
customarj^  manner. 

Assured  Who  Has  no  Interest  Cannot  Assign. 

51.  ^^■here  the  assured  has  parted  with  or  lost  his  interest  in  the  subject- 
matter  insured,  and  has  not,  before  or  at  the  time  of  so  doing,  expressly  or 
impliedly  agreed  to  assign  the  policy,  anj'  subsequent  assignment  of  the 
policy  is  inoperative; 

Provided  that  nothing  in  this  section  affects  the  assignment  of  a  policy 
after  loss. 

The  Premium 
When  Premium  Payable. 

52.  Unless  otherwise  agreed,  the  duty  of  the  assured  or  his  agent  to  pay 
the  premium,  and  the  dutj-  of  the  insurer  to  issue  the  policj'  to  the  assured  or 
his  agent,  are  concurrent  conditions,  and  the  insurer  is  not  bound  to  issue 
the  ])oIicy  until  paj^ment  or  tender  of  the  premium. 

Policy  Effected  Through  Broker. 

63.  (1)  Unless  otherwise  agreed,   where  a  marine  policy  is  effected  on 


APPENDIX  401 

hohalf  of  the  assured  by  a  broker,  the  broker  is  directly  responsible  to  the 
insurer  for  the  premium,  and  the  insurer  is  directly  responsible  to  the  assured 
for  the  amoimt  which  may  be  payable  in  respect  of  losses,  or  in  respect  of 
returnable  premium. 

(2)  Unless  otherwise  agreed,  the  broker  has,  as  against  the  assured,  a  lien 
upon  the  policy  for  the  amount  of  the  premium  and  his  charges  in  respect  of 
effecting  the  policy;  and,  where  he  has  dealt  with  the  person  who  employs 
him  as  a  principal,  he  has  also  a  lien  on  the  policy  in  respect  of  any  balance 
on  any  insurance  account  which  may  be  due  to  him  from  such  person,  uidess 
when  the  debt  was  incurred  he  had  reason  to  believe  that  such  person  was 
only  an  agent. 
Effect  of  Receipt  on  Policy. 

54.  Where  a  marine  policy  effected  on  behalf  of  the  assured  by  a  broker 
acknowledges  the  receipt  of  the  premium,  such  acknowledgment  is,  in  the 
absence  of  fraud,  conclusive  as  between  the  insurer  and  the  assured,  but 
not  as  between  the  insurer  and  broker. 

Loss  and  Abandonment 

Included  and  Excluded  Losses. 

55.  (1)  Subject  to  the  provisions  of  this  Act,  and  unless  the  policy  other- 
wise provides,  the  insurer  is  liable  for  any  loss  proximately  caused  by  a  peril 
insured  against,  but,  subject  as  aforesaid,  he  is  not  liable  for  any  loss  which 
is  not  proximately  caused  by  a  peril  insured  against. 

(2)  In  particular,— 

(a)  The  insurer  is  not  liable  for  any  loss  attributable  to  the  wilful 
misconduct  of  the  assured,  but,  unless  the  policy  otherwise  pro- 
vides, he  is  liable  for  any  loss  proximately  caused  by  a  peril  in- 
sured against,  even  though  the  loss  would  not  have  happened 
but  for  the  misconduct  or  negligence  of  the  master  or  crew ; 

(6)  Unless  the  policy  otherwise  provides,  the  insurer  on  ship  or  goods 
is  not  liable  for  any  loss  proximately  caused  by  delay,  although 
the  delay  be  caused  by  a  peril  insured  against; 

(c)  Unless  the  policy  otherwise  provides,  the  insurer  is  not  liable  for 
ordinary  wear  and  tear,  ordinary  leakage  and  breakage,  inherent 
vice  or  nature  of  the  subject-matter  insured,  or  for  any  loss  proxi- 
mately caused  by  rats  or  vermin,  or  for  any  injury  to  machinery 
not  proximately  caused  by  maritime  perils. 
Partial  and  Total  Loss. 

56.  (1)  A  loss  may  be  either  total  or  partial.  Any  loss  other  than  a 
total  loss,  as  hereinafter  defined,  is  a  partial  loss. 

(2)  A  total  loss  may  be  either  an  actual  total  loss,  or  a  constructive  total  loss. 

(3)  Unless  a  different  intention  appears  from  the  terms  of  the  policy,  an 
insurance  against  total  loss  includes  a  constructive,  as  well  as  an  actual, 
total  loss. 

(4)  Where  the  assured  brings  an  action  for  a  total  lo.ss  and  the  evidence 
proves  only  a  partial  loss,  he  may,  unless  the  policy  otherwise  provides,  re- 
cover for  a  partial  loss 


402  MARINE  INSURANCE 

(5)  Where  goods  roach  their  destination  in  specie,  hut  l)y  reason  of  obht- 
erution  of  marks,  or  otluirwisc,  thej'  are  incapable  of  identification,  the  loss, 
if  any,  is  partial,  and  not  total. 
Actual  Total  Loss. 

57.  (1)  Where  the  subject-matter  insured  is  destroyed,  or  so  damaged 
as  to  cease  to  be  a  thing  of  the  kind  insured,  or  where  the  a.ssured  Ls  irretriev- 
ably deprived  thereof,  there  is  an  actual  total  loss. 

(2)  In  the  case  of  an  actual  total  loss  no  notice  of  abandonment  need  be 
given. 
Missing  Ship. 

58.  Where  the  ship  concerned  in  the  adventure  is  massing,  and  after  the 
lapse  of  a  reasonable  time  no  news  of  her  has  been  received,  an  actual  total 
loss  may  be  presumed. 

Effect  of  Transhipment,  &c. 

59.  Where,  by  a  peril  insured  against,  the  voyage  is  interrupted  at  an 
intermediate  port  or  place,  under  such  circumstances  as,  apart  from  any 
special  stipulation  in  the  contract  of  affreightment,  to  justifj^  the  master  in 
landing  and  re-shipping  the  goods  or  other  movables,  or  in  transhipping 
them,  and  sending  them  on  to  their  destination,  the  liability  of  the  insurer 
continues  notwithstanding  the  landing  or  transhipment. 

Constructive  Total  Loss  Defined. 

60.  (1)  Subject  to  any  express  provision  in  the  policy,  there  is  a  con- 
structive total  loss  where  the  subject-matter  insured  is  reasonably  abandoned 
on  account  of  its  actual  total  loss  appearing  to  be  unavoidable,  or  because 
it  could  not  be  preserved  from  actual  total  loss  without  an  expenditure 
which  would  exceed  its  value  when  the  expenditure  had  been  incurred. 

(2)  In  particular,  there  is  a  constructive  total  loss — 

(i)  Where  the  assured  is  deprived  of  the  possession  of  his  ship  or 
goods  by  a  peril  insured  against,  and  (a)  it  is  unlikely  that  he  can 
recover  the  ship  or  goods,  as  the  case  may  be,  or  (6)  the  cost  of 
recovering  the  ship  or  goods,  as  the  case  may  be,  would  exceed 
their  value  when  recovered ;  or 
(ii)  In  the  case  of  damage  to  a  ship,  where  she  is  so  damaged  by  a 
peril  insured  against  that  the  cost  of  repairing  the  damage  would 
exceed  the  value  of  the  ship  when  repaired. 

In  estimating  the  cost  of  repairs,  no  deduction  is  to  be  made  in 
respect  of  general  average  contributions  to  those  repairs  payable 
by  other  interests,  but  account  is  to  be  taken  of  the  expense  of 
future  salvage  operations  and  of  any  future  general  average  con- 
tributions to  which  the  ship  would  be  liable  if  repaired;  or 
(iii)  In  the  case  of  damage  to  goods,  where  the  cost  of  repairing  the 
damage  and  forwarding  the  goods  to  their  destination  would 
exceed  their  value  on  arrival. 
Effect  of  Constructive  Total  Loss. 

61.  Where  there  is  a  constructive  total  loss  the  assured  may  either  treat 
the  loss  as  a  partial  loss,  or  abandon  the  subject-matter  insured  to  the  in- 
surer and  treat  the  loss  as  if  it  were  an  actual  total  loss. 


APPENDIX  403 

Notice  of  Abandonment. 

62.  (1)  Subject  to  the  provisions  of  this  section,  where  the  assured  elects 
to  abandon  the  subject-matter  insured  to  the  insurer,  he  must  give  notice 
of  abandonment.  If  he  fails  to  do  so  the  loss  can  only  be  treated  as  a  partial 
loss. 

(2)  Notice  of  abandonment  may  be  given  in  writing,  or  by  word  of  mouth, 
or  partly  in  writing  and  partly  by  word  of  mouth,  and  may  be  given  in 
any  terms  which  indicate  the  intention  of  the  assured  to  abandon  his  insured 
interest  in  the  subject-matter  insured  unconditionally  to  the  insurer. 

(3)  Notice  of  abandonment  must  be  given  with  reasonable  diligence  after 
the  receipt  of  reliable  information  of  the  loss,  but  where  the  information  is 
of  a  doubtful  character  the  assured  is  entitled  to  a  reasonable  time  to  make 
inquiry. 

(4)  Where  notice  of  abandonment  is  properly  given,  the  rights  of  the 
assured  are  not  prejudiced  by  the  fact  that  the  insurer  refuses  to  accept 
the  abandonment. 

(5)  The  acceptance  of  an  abandonment  may  be  either  express  or  implied 
from  the  conduct  of  the  insurer.  The  mere  silence  of  the  insurer  after 
notice  is  not  an  acceptance. 

(6)  Where  notice  of  abandonment  is  accepted  the  abandonment  is  irre- 
vocable. The  acceptance  of  the  notice  conclusively  admits  liability  for  the 
loss  and  the  sufficiency  of  the  notice. 

(7)  Notice  of  abandonment  is  unnecessary  where,  at  the  time  when  the 
assured  receives  information  of  the  loss,  there  would  be  no  possibility  of 
benefit  to  the  insurer  if  notice  were  given  to  him. 

(8)  Notice  of  abandonment  may  be  waived  by  the  insurer. 

(9)  Where  an  insurer  has  re-insured  his  risk,  no  notice  of  abandonment 
need  be  given  by  him. 

Effect  of  Abandonment. 

63.  (1)  Where  there  is  a  valid  abandonment  the  insurer  is  entitled  to 
take  over  the  interest  of  the  assured  in  whatever  may  remain  of  the  subject- 
matter  insured,  and  all  proprietary  rights  incidental  thereto. 

(2)  Upon  the  abandonment  of  a  ship,  the  insurer  thereof  is  entitled  to  any 
freight  in  course  of  being  earned,  and  which  is  earned  by  her  subsequent  to 
the  casualty  causing  the  loss,  less  the  expenses  of  earning  it  incurred  after 
the  casualty;  and,  where  the  ship  is  carrying  the  owner's  goods,  the  insurer 
is  entitled  to  a  reasonable  remuneration  for  the  carriage  of  them  subsequent 
to  the  casualty  causing  the  loss. 

Partial  Losses  (including  Salvage  and  General  Average  and 
Particular  Charges) 
Particular  Average  Loss. 

64.  (1)  A  particular  average  loss  is  a  partial  loss  of  the  subject-matter 
insured,  caused  by  a  peril  insured  against,  and  which  is  not  a  general  average 
loss. 

(2)  Expenses  incurred  by  or  ou  behalf  of  the  assured  for  the  safety  or 
preservation  of  the  subject  matter  insured,  other  than  general  average  and 


•lot  MAin.M'J  i.\srn.\N('E 

salvano  clmruf's,  nro  oiUcd  particular  charges.     I'articular  charges  arc  not 
iiichidfd  in  particular  average. 
Salvage  Charges. 

65.  (1)  Subject  to  any  express  provision  in  the  jjolicy,  salvage  charges 
incurred  in  preventing  a  loss  by  perils  insured  against  may  be  recovered  as 
a  loss  by  those  perils. 

(2)  "Salvage  charges"  means  the  charges  recoverable  under  maritime 
law  by  a  salvor  independently  of  contract.  They  do  not  include  the  ex- 
penses of  services  in  the  nature  of  .salvage  rendered  by  the  assured  or  his 
agents,  or  anj'  person  employed  for  hire  by  them,  for  the  purpose  of  averting 
a  peril  insured  against.  Such  expenses,  where  properly  incurred,  may  be 
recovered  as  particular  charges  or  as  a  general  average  loss,  according  to 
the  circumstances  under  which  they  were  incurred. 
General  Average  Loss. 

66.  (1)  A  general  average  loss  is  a  loss  caused  by  or  directly  con.se(iucn- 
tial  on  a  general  average  act.  It  includes  a  general  average  expenditure  as 
well  as  a  general  average  sacrifice. 

(2)  There  is  a  general  average  act  where  any  extraordinary  sacrifice  or 
expenditure  is  voluntarily  and  reasonably  made  or  incurred  in  time  of  peril 
for  the  purpose  of  preserving  the  property  imperilled  in  the  common 
adventure. 

(3)  Where  there  is  a  general  average  loss,  the  party  on  whom  it  falls  is 
entitled,  subject  to  the  conditions  imposed  by  maritime  law,  to  a  rateable 
contribution  from  the  other  parties  interested,  and  such  contribution  is 
called  a  general  average  contribution. 

(4)  Subject  to  any  express  provision  in  the  policy,  where  the  assured  has 
incurred  a  general  average  expenditure,  he  may  recover  from  the  insurer 
in  respect  of  the  proportion  of  the  loss  which  falls  upon  him;  and,  in  the  case 
of  a  general  average  sacrifice,  he  may  recover  from  the  insurer  in  respect 
of  the  whole  loss  without  having  enforced  his  right  of  contribution  from  the 
other  parties  liable  to  contribute. 

(5)  Subject  to  any  express  provision  in  the  policy,  where  the  assured  has 
paid,  or  is  liable  to  pay,  a  general  average  contribution  in  respect  of  the 
subject  insured,  he  may  recover  therefor  from  the  insurer. 

(6)  In  the  absence  of  express  stipulation,  the  insurer  is  not  liable  for  any 
general  average  loss  or  contribution  where  the  loss  was  not  incurred  for  the 
purpose  of  avoiding,  or  in  connexion  with  the  avoidance  of,  a  peril  insured 
against. 

(7)  Where  ship,  freight,  and  cargo,  or  any  two  of  those  interests,  are  owned 
by  the  same  assured,  the  liability  of  the  insurer  in  respect  of  general  average 
losses  or  contributions  is  to  be  determined  as  if  those  subjects  were  owned 
by  different  persons 

Measure  of  Indemnity 

Extent  of  Liability  of  Insurer  for  Loss, 

67.  (1)  The  sum  which  the  assured  can  recover  in  respect  of  a  loss  on  a 
policy  by  which  he  is  insured,  in  the  case  of  an  unvalued  policy  to  the  full 


APPENDIX  .  405 

extent  of  the  insurable  value,  or,  in  the  case  of  a  valued  policy  to  the 
full  extent  of  the  value  fixed  by  the  policy,  is  called  the  measure  of 
indemnity. 

(2)  Where  there  is  a  loss  recoverable  under  the  policy,  the  insurer,  or 
each  insurer  if  there  be  more  than  one,  is  liable  for  such  proportion  of  the 
measure  of  indemnity  as  the  amount  of  his  subscription  bears  to  the  value 
fixed  by  the  policy  in  the  case  of  a  valued  policy,  or  to  the  insurable  value 
in  the  case  of  an  unvalued  policy. 
Total  Loss. 

68.  Subject  to  the  provisions  of  this  Act  and  to  any  express  provision  in 
the  policy,  where  there  is  a  total  loss  of  the  subject-matter  insured, — 

(1)  If  the  policy  be  a  valued  policy,  the  measure  of  indemnity  is  the  sum 
fixed  by  the  policy: 

(2)  If  the  policy  be  an  unvalued  policy,  the  measure  of  indemnity  is  the 
insurable  value  of  the  subject-matter  insured. 

Partial  Loss  of  Ship. 

69.  Where  a  ship  is  damaged,  but  is  not  totally  lost,  the  measure  of  in- 
demnity, subject  to  any  express  provision  in  the  policy,  is  as  follows: — 

(1)  Where  the  ship  has  been  repaired,  the  assured  is  entitled  to  the  reason- 
able cost  of  the  repairs,  less  the  customary  deductions,  but  not  ex- 
ceeding the  sum  insured  in  respect  of  any  one  casualty: 

(2)  Where  the  ship  has  been  only  partially  repaired,  the  assured  is  entitled 
to  the  reasonable  cost  of  such  repairs,  computed  as  above,  and  also  to 
be  indemnified  for  the  reasonable  depreciation,  if  any,  arising  from 
the  unrepaired  damage,  provided  that  the  aggregate  amount  shall  not 
exceed  the  cost  of  repairing  the  whole  damage,  computed  as  above : 

(3)  Where  the  ship  has  not  been  repaired,  and  has  not  been  sold  in  her 
damaged  state  during  the  risk,  the  assured  is  entitled  to  be  indemnified 
for  the  reasonable  depreciation  arising  from  the  unrepaired  damage, 
but  not  exceeding  the  reasonable  cost  of  repairing  such  damage,  com- 
puted as  above. 

Partial  Loss  of  Freight, 

70.  Subject  to  any  express  provision  in  the  policy,  where  there  is  a  partial 
loss  of  freight,  the  measure  of  indemnity  is  such  proportion  of  the  sum  fixed 
by  the  policy  in  the  case  of  a  valued  policy,  or  of  the  insurable  value  in  the 
case  of  an  unvalued  policy,  as  the  proportion  of  freight  lost  by  the  assured 
bears  to  the  whole  freight  at  the  risk  of  the  assured  under  the  policy. 
Partial  Loss  of  Goods,  Merchandise,  &c. 

71.  Where  there  is  a  partial  loss  of  goods,  merchandise,  or  other  movables, 
the  measure  of  indemnity,  subject  to  any  express  provision  in  the  policy, 
is  as  follows: — 

(1)  Where  part  of  the  goods,  merchandise  or  other  movables  insured  by 
a  valued  policy  is  totally  lost,  the  measure  of  indenmity  is  such  pro- 
portion of  the  sum  fixed  by  the  policy  as  the  insurable  value  of  the 
part  lost  bears  to  the  insurable  value  of  the  whole,  ascertained  as  in 
the  case  of  an  unvalued  policy : 

(2)  Where  part  of  the  goods,  merchandise,  or  other  movables  insured 


406  MARINE  INSURANCE 

by  an  unvalued  policy  is  totally  lost,  the  mpa.sure  of  indemnity  is  the 
insurable  value  of  the  part  lost,  ascertained  as  in  case  of  total  loss: 

(3)  Where  the  whole  or  any  part  of  the  goods  or  merchandise  insured  has 
been  delivered  damaged  at  its  destination,  the  measure  of  indemnity 
is  such  proportion  of  the  sum  fixed  by  the  policy  in  the  case  of  a  valued 
policy,  or  of  the  insurable  value  in  the  case  of  an  unvalued  policy,  as 
the  dilTerence  between  the  gross  sound  and  damaged  values  at  the 
place  of  arrival  bears  to  the  gross  sound  value: 

(4)  "dross  value"  means  the  wholesale  price  or,  if  there  be  no  such  price, 
the  estimated  value,  with,  in  either  case,  freight,  landing  charges, 
and  duty  paid  beforehand;  provided  that,  in  the  case  of  goods  or 
merchandise  customarily  sold  in  bond,  the  bonded  price  is  deemed 
to  be  the  gross  value.  "Gross  proceeds"  means  the  actual  price  ob- 
tained at  a  sale  where  all  charges  on  sale  are  paid  by  the  sellers. 

Apportionment  of  Valuation. 

72.  (1)  Where  diderent  species  of  property  are  insured  under  a  single 
valuation,  the  valuation  must  V)e  apportioned  over  the  different  species  in 
proportion  to  their  respective  insurable  values,  as  in  the  case  of  an  unvalued 
policy.  The  insured  value  of  any  part  of  a  species  is  such  proportion  of 
the  total  insured  value  of  the  same  as  the  insurable  value  of  the  part  bears 
to  the  insurable  value  of  the  whole,  ascertained  in  both  cases  as  provided 
by  this  Act. 

(2)  Where  a  valuation  has  to  be  apportioned,  and  particulars  of  the  prime 
cost  of  each  separate  species,  quality,  or  description  of  goods  cannot  be 
ascertained,  the  division  of  the  valuation  may  be  made  over  the  net  arrived 
sound  values  of  the  different  species,  qualities,  or  descriptions  of  goods. 
General  Average  Contributions  and  Salvage  Charges. 

73.  (1)  Subject  to  any  express  provision  in  the  policy,  where  the  assured 
has  paid,  or  is  liable  for,  any  general  average  contribution,  the  measure  of 
indemnity  is  the  full  amount  of  such  contribution,  if  the  subject-matter 
liable  to  contribution  is  insured  for  its  full  contributory  value;  but,  if  such 
subject-matter  be  not  insured  for  its  full  contributory  value,  or  if  only  part 
of  it  be  insured,  the  indemnity  payable  by  the  insurer  must  be  reduced  in 
proportion  to  the  under  insurance,  and  where  there  has  been  a  particular 
average  loss  which  constitutes  a  deduction  from  the  contributory  value, 
and  for  which  the  insurer  is  liable,  that  amount  must  be  deducted  from  the 
insured  value  in  order  to  ascertain  what  the  insurer  is  liable  to  contribute. 

(2)  Where  the  insurer  is  liable  for  salvage  charges  the  extent  of  his  liability 
must  be  determined  on  the  like  principle. 
Liabilities  to  Third  Parties. 

74.  Where  the  assured  has  effected  an  insurance  in  express  terms  against 
any  liability  to  a  third  party,  the  measure  of  indemnity,  subject  to  any 
express  provision  in  the  policy,  is  the  amount  paid  or  payable  by  him  to 
such  third  party  in  respect  of  such  lial)ility. 

General  Provisions  as  to  Measure  of  Indemnity. 

75.  (1)  Where  there  has  been  a  loss  in  respect  of  any  subject-matter 
not  expressly  provided  for  in  the  foregoing  provisions  of  this  Act,  the  measure 


APPENDIX  407 

of  indemnity  shall  be  ascertained,  as  nearly  as  may  be,  in  accordance  with 
those  provisions,  in  so  far  as  applicable  to  the  particular  case. 

(2)  Nothing  in  the  provisions  of  this  Act  relating  to  the  measure  of  in- 
demnity shall  affect  the  rules  relating  to  double  insurance,  or  prohibit  the 
insurer  from  disproving  interest  wholly  or  in  part,  or  from  showing  that  at 
the  time  of  the  loss  the  whole  or  any  part  of  the  subject-matter  insured 
was  not  at  risk  under  the  policy. 
Particular  Average  Warranties. 

76.  (1)  Where  the  subject-matter  insured  is  warranted  free  from  par- 
ticular average,  the  assured  cannot  recover  for  a  loss  of  part,  other  than  a 
loss  incurred  by  a  general  average  sacrifice,  unless  the  contract  contained 
in  the  policy  be  apportionablc ;  but,  if  the  contract  be  apportionable,  the 
assured  may  recover  for  a  total  loss  of  any  apportionable  part. 

(2)  Where  the  subject-matter  insured  is  warranted  free  from  particular 
average,  either  wholly  or  under  a  certain  percentage,  the  insurer  is  neverthe- 
less liable  for  salvage  charges,  and  for  particular  charges  and  other  expenses 
properly  incurred  pursuant  to  the  provisions  of  the  suing  and  labouring 
clause  in  order  to  avert  a  loss  insured  against. 

(3)  Unless  the  policy  otherwise  provides,  where  the  subject-matter  in- 
sured is  warranted  free  from  particular  average  under  a  specified  percentage, 
a  general  average  loss  cannot  be  added  to  a  particular  average  loss  to  make 
up  the  specified  percentage. 

(4)  For  the  purpose  of  ascertaining  whether  the  specified  percentage  has 
been  reached,  regard  shall  be  had  only  to  the  actual  loss  suffered  by  the 
subject-matter  insured.     Particular  charges  and  the  expenses  of  and  inci- 
dental to  ascertaining  and  proving  the  loss  must  be  excluded. 
Successive  Losses. 

77.  (1)  Unless  the  policy  otherwise  provides,  and  subject  to  the  provi- 
sions of  this  Act,  the  insurer  is  liable  for  successive  losses,  even  though  the 
total  amount  of  such  losses  may  exceed  the  sum  insured. 

(2)  Where,  under  the  same  policy,  a  partial  loss,  which  has  not  been  re- 
paired or  otherwise  made  good,  is  followed  by  a  total  loss,  the  assured  can 
only  recover  in  respect  of  the  total  loss: 

Provided  that  nothing  in  this  section  shall  affect  the  liability  of  the  in- 
surer under  the  suing  and  labouring  clause. 
Suing  and  Labouring  Clause. 

78.  (1)  Where  the  policy  contains  a  suing  and  labouring  clause,  the 
engagement  thereby  entered  into  is  deemed  to  be  supplementary  to  the 
contract  of  insurance,  and  the  assured  may  recover  from  the  insurer  any 
expenses  properly  incurred  pursuant  to  the  clause,  notwithstanding  that 
the  insurer  may  have  paid  for  a  total  loss,  or  that  the  subject-matter  may 
have  been  warranted  free  from  particular  average,  either  wholly  or  under 
a  certain  percentage. 

(2)  General  average  losses  and  contributions  and  salvage  charges,  as 
defined  by  this  Act,  are  not  recoverable  under  the  suing  and  labouring 
clause. 

(3)  Expenses  incurred  for  the  purpose  of  averting  or  diminishing  any  loss 


•JOS  .U.I/.7.\7';  I.XSURANCE 

not  covennl  l)y  tli(!  i)olicy  an-  not  i('C'ovcnil)l('  utnlcr  tlic  siiiiif;  and  lal>ourin^ 
clause. 

Rights  of  InsitrfT  on  I'oijmcnt 
Right  of  Subrogation. 

79.  (1)  Where  the  insurer  pays  for  a  total  loss,  cither  of  the  whole,  or 
in  the  case  of  goods  of  any  apportionablc  part,  of  the  subject-matter  insured, 
he  thereupon  becomes  entitled  to  take  over  the  interest  of  the  assured  in 
whatever  nmy  remain  of  the  subject-matter  so  paid  for,  and  he  is  thereby 
subrogated  to  all  the  rij^hts  and  remedies  of  the  assured  in  and  in  respect 
of  that  subject-matter  as  from  the  time  of  the  casualty  causing  the  loss. 

(2)  Subject  to  the  foregoing  provisions,  where  the  insurer  pays  for  a 
partial  loss,  he  acquires  no  title  to  the  sul)ject-matter  insured,  or  such  part 
of  it  as  may  remain,  but  he  is  thereupon  subrogated  to  all  rights  and  reme- 
dies of  the  assured  in  and  in  respect  of  the  subject-matter  insured  as  from 
the  time  of  the  casualty  causing  the  loss,  in  so  far  as  the  assured  has  been 
iiideiiinificd,  according  to  this  Act,  by  such  payment  for  the  loss. 
Right  of  Contribution. 

80.  (1)  Whore  the  assured  is  over-insured  by  double  insurance,  each 
insurer  is  bound,  as  between  himself  and  the  other  insurers,  to  contribute 
rateably  to  the  loss  in  proportion  to  the  amount  for  which  he  is  liable  under 
his  contract. 

(2)  If  any  insurer  pays  more  than  his  proportion  of  the  loss,  he  is  entitled 
to  maintain  an  action  for  contribution  against  the  other  insurers,  and  is 
entitled  to  the  like  remedies  as  a  surety  who  has  paid  more  than  his  propor- 
tion of  the  debt. 
Effect  of  Under  Insurance. 

81.  Where  the  assured  is  insured  for  an  amount  less  than  the  insurable 
value  or,  in  the  case  of  a  valued  policy,  for  an  amount  less  than  the  policy 
valuation,  he  is  deemed  to  be  his  own  insurer  in  respect  of  the  uninsured 
balance. 

Return  of  Premium 
Enforcement  of  Return. 

82.  Where  the  premium,  or  a  proportionate  part  thereof  is,  1)}'  this  Act 
declared  to  be  returnable, — 

(a)  If  already  paid,  it  may  be  recovered  by  the  assured  from  the  insurer; 

and 
{}))   If  unpaid,  it  may  be  retained  by  the  assured  or  his  agent. 
Return  by  Agreement. 

83.  Where  the  policy  contains  a  stipulation  for  the  return  of  the  premium, 
or  a  proportionate  part  thereof,  on  the  happening  of  a  certain  event,  and 
ihat  event  happens,  the  premium,  or,  as  the  case  may  be,  the  proportionate 
part  thereof.  Is  thereupon  returnable  to  the  assured. 

Return  for  Failure  of  Consideration. 

84.  (1)  Where  the  consideration  for  the  payment  of  the  premium  totally 
fails,  and  there  has  been  no  fraud  or  illegality  on  the  part  of  the  assured  or 
his  agents,  the  premium  is  thereupon  returnable  to  the  assured. 


APPENDIX  409 

(2)  Where  the  consideration  for  the  payment  of  the  premium  is  apportion- 
able  and  there  is  a  total  failure  of  any  apportionable  part  of  the  considera- 
tion, a  proportionate  part  of  the  premium  is,  under  the  like  conditions,  there- 
upon returnable  to  the  assured. 

(3)  In  particular — 

(a)  Where  the  policy  is  void,  or  is  avoided  by  the  insurer  as  from  the 
commencement  of  the  risk,  the  premium  is  returnable,  provided 
that  there  has  been  no  fraud  or  illegality  on  the  part  of  the 
assured ;  but  if  the  risk  is  not  apportionable,  and  has  once  attached, 
the  premium  is  not  returnable: 

(b)  Where  the  subject-matter  insured,  or  part  thereof,  has  never  been 
imperilled,  the  premium,  or,  as  the  case  maiy  be,  a  proportionate 
part  thereof,  is  returnable: 

Provided  that  where  the  subject-matter  has  been  insured  "lost 
or  not  lost"  and  has  arrived  in  safety  at  the  time  when  the  con- 
tract is  concluded,  the  premium  is  not  returnable  unless,  at  such 
time,  the  insurer  knew  of  the  safe  arrival; 

(c)  Where  the  assured  has  no  insurable  interest  throughout  the  cur- 
rency of  the  risk,  the  premium  is  returnable,  provided  that  this  rule 
does  not  apply  to  a  policy  effected  by  way  of  gaming  or  wagering 

(d)  Where  the  assured  has  a  defeasible  interest  which  is  terminated 
during  the  currency  of  the  risk,  the  premium  is  not  returnable; 

(e)  Where  the  assured  has  over-insured  under  an  unvalued  policy,  a 
proportionate  part  of  the  premium  is  returnable; 

(/)  Subject  to  the  foregoing  provisions,  where  the  assured  has  over- 
insured  by  double  insurance,  a  proportionate  part  of  the  several 
premiums  is  returnable: 

Provided  that,  if  the  policies  are  effected  at  different  times,  and 
any  earlier  policy  has  at  any  time  borne  the  entire  risk,  or  if  a 
claim  has  been  paid  on  the  policy  in  respect  of  the  full  sum  insvired 
thereby,  no  premium  is  returnable  in  respect  of  that  policy,  and 
when  the  double  insurance  is  effected  knowingly  by  the  assured 
no  premium  is  returnable. 

Mutual  Insurance 
Modification  of  Act  in  Case  of  Mutual  Insurance. 

85.  (1)  Where  two  or  more  persons  mutually  agree  to  insure  each  other 
against  marine  losses  there  is  said  to  be  a  mutual  insurance. 

(2)  The  provisions  of  this  Act  relating  to  the  premium  do  not  apply  to 
mutual  insurance,  but  a  guarantee,  or  such  other  arrangement  as  may  be 
agreed  upon,  may  be  substituted  for  the  premium. 

(3)  The  provisions  of  this  Act,  in  so  far  as  they  may  be  modified  by  the 
agreement  of  the  parties,  may  in  the  case  of  mutual  insurance  be  modified 
by  the  terms  of  the  policies  issued  by  the  association,  or  by  the  rules  and 
regulations  of  the  association. 

(4)  Subject  to  the  exceptions  mentioned  in  this  section,  the  provisions 
of  this  Act  apply  to  a  mutual  insurance. 


•no  MAUINE  INSURANCE 

Supplemental 
Ratification  by  Assured. 

86.  Where  a  contract  of  marine  insurance  Ls  in  (jjood  faith  effected  by  one 
person  on  behalf  of  another,  the  person  on  whose  behalf  it  is  effected  may 
ratify  the  contriict  even  after  he  is  aware  of  a  loss. 

Implied  Obligations  Varied  by  Agreement  or  Usage. 

87.  (1)  Where  any  ri^ht,  duty,  or  lial)ility  would  arise  under  a  contract 
of  marine  insurance  by  implication  of  law,  it  may  be  n(!gatived  or  varied 
by  express  agreement,  or  by  usa^e,  if  the  usa^e  be  such  as  to  bind  both 
parties  to  the  contract. 

(2)  The  provisions  of  this  section  extend  to  any  ri^ht,  duty,  or  liability 
declared  by  this  Act  which  may  be  lawfully  modified  by  agreement. 
Reasonable  Time,  &c.  a  Question  of  Fact. 

88.  Where  by  this  Act  any  reference  is  made  to  rea.sonable  time,  reason- 
able premium,  or  reasonable  diligence,  the  question  what  is  rea.sonable  is  a 
(]uestion  of  fact. 

Slip  as  Evidence. 

89.  Where  there  is  a  duly  stamped  policy,  reference  may  be  made,  as 
heretofore,  to  the  slip  or  covering;  note,  in  any  legal  proceeding. 
Interpretation  of  Terms. 

90.  In  this  Act,  unless  the  context  or  subject-mat  ter  otherwi.se  requires, — 
"Action"  includes  counter-claim  and  set  olT: 

"Freight"  includes  the  profit  derivable  by  a  shipowner  from  the  employ- 
ment of  his  ship  to  carry  his  own  goods  or  movables,  as  well  as  freight 
payable  by  a  third  party,  but  does  not  include  passage  money: 

"Movables"  means  any  movable  tangible  property,  other  than  the 
ship,  and  includes  money,  valuable  securities,  and  other  documents: 

"Policy"  means  a  marine  policy. 
Savings. 

91.  (1)  Nothing  in  this  Act,  or  in  any  repeal  effected  thereby,  shall  afTect — 

(a)  The  provisions  of  the  Stamp  Act,  1891,  or  any  enactment  for  the 
time  being  in  force  relating  to  the  revenue; 

(b)  The  provisions  of  the  Companies  Act,  1862,  or  any  enactment 
amending  or  substituted  for  the  same; 

(c)  The  provisions  of  any  statute  not  expressly  repealed  by  this  Act. 
(2)  The  rules  of  the  common  law  including  the  law  merchant,  save  in  so 

far  as  thej'  are  inconsistent  with  the  express  provisions  of  this  Act,  shall 

continue  to  apply  to  contracts  of  marine  insurance. 

Repeals. 

92.  The  enactments  mentioned  in  the  Second  Schedide  to  this  Act  are 
hereby  repealed  to  the  extent  specified  in  that  schedule. 
Commencement. 

93.  This  ,\ct  shall  come  into  operation  on  the  first  day  of  Jaimary  one 
thousand  nine  hundred  and  seven. 

Short  Title. 

94.  This  .\ct  may  be  cited  as  the  Marine  Insurance  Act,  1906. 


APPENDIX  411 

SCHEDULES 


FIRST  SCHEDULE 


Form  of  Policy 
O       Be  it  known  that  as  well  in 

w  >,  own  name  as  for  and  in  the  name  and  names  of  all  and  every  other  person 
i"—  or  persons  to  whom  the  same  doth,  may,  or  shall  appertain,  in  part  or  in 
>>C^   all  doth  make  assurance  and  cause 
2       and  them,  and  every  of  them,  to  be  insured  lost  or  not  lost,  at  and  from 

Upon  any  kind  of  goods  and  merchandises,  and  also  upon  the  body,  tackle, 

apparel,  ordnance,  munition,  artillery,  boat,  and  other  furniture,  of  and  in 

the  good  ship  or  vessel  called  the 

whereof  is  master  under  God,  for  this  present  voyage, 

or  whosoever  else  shall  go  for  master  in  the  said  ship,  or  by  whatsoever  other 

name  or  names  the  said  ship,  or  the  master  thereof,  is  or  shall  be  named  or 

called ;  beginning  the  adventure  upon  the  said  goods  and  merchandises  from 

the  loading  thereof  aboard  the  said  ship, 

upon  the  said  ship,  &c. 

and  so  shall  continue  and  endure,  during  her  abode  there,  upon  the  said 
ship,  &c.  And  further,  until  the  said  ship,  with  all  her  ordnance,  tackle, 
apparel,  &c.,  and  goods  and  merchandises  whatsoever  shall  be  arrived  at 


upon  the  said  ship,  &c.,  until  she  hath  moored  at  anchor  twenty-four  hours 
in  good  safety;  and  upon  the  goods  and  merchandises,  until  the  same  be 
there  discharged  and  safely  landed.  And  it  shall  be  lawful  for  the  said  ship, 
&c.,  in  this  voyage,  to  proceed  and  sail  to  and  touch  and  stay  at  any  ports 
or  places  whatsoever 

without  prejudice  to  this  insurance.  The  said  ship,  &c.,  goods  and  mer- 
chandises, &c.,  for  so  much  as  concerns  the  assured  by  agreement  between 
the  assured  and  assurers  in  this  policy,  are  and  shall  be  valued  at 

Touching  the  adventures  and  perils  which  we  the  assurers  arc  contented 

to  bear  and  do  take  upon  us  in  this  voyage:  they  are  of  the  seas,  men  of 

war,  fire,  enemies,  pirates,  rovers,  thieves,  jettisons,  letters  of  mart  and 

countermart,  surprisals,  takings  at  sea,  arrests,  restraints,  and  detainments 

OT  of  all  kings,  princes,  and  people,  of  what  nation,  condition,  or  quahty  soever, 

fl  «  barratry  of  the  master  and  mariners,  and  of  all  other  perils,  losses,  and 

<D  "  misfortunes,  that  have  or  shall  come  to  the  hurt,  detriment,  or  damage  of  the 

w^  said  goods  and  merchandises,  and  ship,  &c.,  or  any  part  thereof.     And  in 

*  case  of  any  loss  or  misfortune  it  shall  be  lawful  to  the  assured,  their  factors, 


412  MAh'IM':  iXSlli'.WCE 

scrvaiils  and  a.s.sini»s,  to  8uc,  lal^our,  and  travel  for,  in  and  about  the  defence, 
Hafi'Kuards,  an»l  recovery  of  the  said  goods  and  merchandises,  and  ship,  &c., 
or  any  part  thereof,  without  prejudice  to  this  insurance;  to  the  charges 
whereof  we,  the  assurers,  will  contribute  each  one  according  to  the  rate  and 
4>  ^  (luantity  of  his  sum  herein  assured.  And  it  is  especially  declared  and  agreed 
S  rt  that  no  acts  of  the  insurer  or  insured  in  recovering,  saving,  or  preserving  the 
^  "  property  insured  shall  be  considered  as  a  waiver,  or  acceptance  of  abandon- 
ment. And  it  is  agreed  by  us,  the  insurers,  that  this  writing  or  policy  of 
assurance  shall  be  of  as  much  force  and  effect  as  the  surest  writing  or  policy 
of  assurance  heretofore  made  in  Lombard  Street,  or  in  the  Royal  Exchange, 
or  elsewhere  in  London.  And  so  we,  the  assurers,  are  contented,  and  do 
hereby  promise  and  bind  ourselves,  each  one  for  his  own  part,  our  heirs,  ex- 
ecutors, and  goods  to  the  assured,  their  executors,  administrators,  and 
assigns,  for  the  true  performance  of  the  premises,  confessing  ourselves  paid 
the  consideration  due  unto  us  for  this  assurance  by  the  assured,  at  and  after 
the  rate  of 

In  Witness  whereof  we,  the  assurers,  have  subscribed  our  names  and 
sums  assured  in  London. 

S  N.B. — Corn,  fish,  salt,  fruit,  flour,  and  seed  are  warranted  free  from 

■^  average,  unless  general,  or  the  ship  be  stranded — sugar,  tobacco,  hemp,  flax, 

2  hides  and  skins  are  warranted  free  from  average,  under  five  pounds  percent, 

g  and  all  other  goods,  also  the  ship  and  freight,  arc  warranted  free  from  average, 

^  under  three  pounds  percent  unless  general,  or  the  ship  be  stranded. 

Rules  /or  Construction  of  Policy 

The  following  are  the  rules  referred  to  by  this  Act  for  the  construction  of  a 
policy  in  the  above  or  other  like  form,  where  the  context  does  not  otherwise 
require: — 
Lost  or  not  Lost. 

1    Where  the  subject-matter  is  insured  "lost  or  not  lost,"  and  the  loss 
has  occurred  before  the  contract  is  concluded,  the  risk  attaches  imless,  at 
such  time  the  assured  was  aware  of  the  loss,  and  the  insurer  was  not. 
From. 

2.  Where  the  subject-matter  is  insured  "from"  a  particular  place,  the 
risk  does  not  attach  until  the  ship  starts  on  the  voyage  insured. 

At  and  From.     [Ship.] 

3.  (a)  Where  a  ship  is  insured  "at  and  from"  a  particular  place,  and 
she  is  at  that  place  in  good  safety  when  the  contract  is  concluded,  the  risk 
attaches  immediately. 

(6)  If  she  be  not  at  that  place  when  the  contract  is  conchided  the  risk 
attaches  as  soon  as  she  arrives  there  in  good  safety,  and,  imless  the  policy 
otherwise  provides,  it  is  immaterial  that  she  is  covered  by  another  policy 
for  a  specified  time  after  arrival. 
[Freight.] 

(c)  Where  chartered  freight  is  insured  "at  and  from"  a  particular  place, 
and  the  ship  is  at  that  place  in  good  safety  when  the  contract  is  concluded 


APPENDIX  413 

the  risk  attaches  immediately.     If  she  be  not  there  when  the  contract  is 
concluded,  the  risk  attaches  as  soon  as  she  arrives  there  in  good  safety. 

(rf)  Where  freight,  other  than  chartered  freight,  is  payable  without 
special  conditions  and  is  insured  "at  and  from"  a  particular  place,  the  risk 
attaches  pro  rata  as  the  goods  or  merchandise  are  shipped;  provided  that 
if  there  be  carg-o  in  readiness  which  belongs  to  the  shipowner,  or  which 
some  other  person  has  contracted  with  him  to  ship,  the  risk  attaches  as 
soon  as  the  ship  is  read}'  to  receive  such  cargo. 
From  the  Loading  thereof. 

4.  Where  goods  or  other  movables  are  insured  "from  the  loading  thereof," 
the  risk  does  not  attach  until  such  goods  or  movables  are  actually  on  board, 
and  the  insurer  is  not  liable  for  them  while  in  transit  from  the  shore  to  the  ship. 
Safely  Landed. 

5.  Where  the  risk  on  goods  or  other  movables  continues  until  they  are 
"safely  landed,"  they  must  be  landed  in  the  customary  manner  and  within 
a  reasonable  time  after  arrival  at  the  port  of  discharge,  and  if  they  are  not 
so  landed  the  risk  ceases. 

Touch  and  Stay. 

6.  In  the  absence  of  any  further  license  or  usage,  the  liberty  to  touch 
and  stay  "at  any  port  or  place  whatsoever"  does  not  authorise  the  ship  to 
depart  from  the  course  of  her  voyage  from  the  port  of  departure  to  the  port 
of  destination. 

Perils  of  the  Seas. 

7.  The  term  "perils  of  the  seas"  refers  only  to  fortuitous  accidents  or 
casualties  of  the  seas.  It  does  not  include  the  oridnary  action  of  the  winds 
and  waves. 

Pirates. 

8.  The  term  "pirates"  includes  passengers  who  mutiny  and  rioters  who 
attack  the  ship  from  the  shore. 

Thieves. 

9    The  term  "thieves"  does  not  cover  clandestine  theft  or  a  theft  com- 
mitted by  any  one  of  the  ship's  company,  whether  crew  or  passengers. 
Restraint  of  Princes. 

10.  The  term  "arrests,  &c.,  of  kings,  princes,  and  people"  refers  to 
political  or  executive  acts,  and  does  not  include  a  loss  caused  by  riot  or 
by  ordinary  judicial  process. 

Barratry. 

11.  The  term  "barratry"  includes  every  wrongful  act  wilfuUj'  com- 
mitted by  the  master  or  crew  to  the  prejudice  of  the  owner,  or,  as  the  case 
may  be   the  charterer. 

All  Other  Perils. 

12.  The  term  "all  other  perils"  includes  only  perils  similar  in  kind  to  the 
perils  specifically  mentioned  in  the  policy. 

Average  unless  General. 

13.  The  term  "average  unless  general"  means  a  partial  loss  of  the  sub- 
ject-matter insured  other  than  a  general  average  loss,  and  does  not  include 
"particular  charges." 

28 


414 


MARINE  INSURANCE 


Stranded. 

14.  Whore  the  ship  has  stranded,  the  insurer  is  liable  for  the  excepted 
losses,  although  the  loss  is  not  attributable  to  the  stranding,  provided  that 
when  the  stranding  takes  place  the  risk  has  attached  and,  if  the  policy  be 
on  goods,  that  the  damaged  goods  are  on  board. 

Ship. 

15.  The  term  "ship"  includes  the  hull,  materials  and  outfit,  stores  and 
provisions  for  the  officers  and  crew,  and,  in  the  ca.se  of  vessels  engaged  in  a 
special  trade,  the  ordinary  fittings  requisite  for  the  trade,  and  also,  in  the 
case  of  a  steamship,  the  machinery,  boilers,  and  coals  and  engine  stores,  if 
owned  by  the  assured. 

Freight. 

16.  The  term  "freight"  includes  the  profit  derivable  by  a  shipowner 
from  the  employment  of  his  ship  to  carry  his  own  goods  or  movables,  as 
well  as  freight  payable  by  a  third  party,  but  docs  not  include  passage  money. 
Goods. 

17.  The  term  "goods"  means  goods  in  the  nature  of  merchandise,  and 
does  not  include  personal  effects  or  provisions  and  stores  for  use  on  board. 

In  the  absence  of  any  usage  to  the  contrary,  deck  cargo  and  living  animals 
must  be  insured  specifically,  and  not  under  the  general  denomination  of 
goods. 


SECOND  SCHEDULE 


Enactments  Repealed 


y-ession  and 
Chapter 


19  Geo.  2.  c.  37. 


28  Geo.  3.  c.  56. 


Title  or  Short  Title 


lOxtciit  of  Repeal 


An  Act  to  regulate  insurance  on  ships  '  The  whole  Act. 
belonging  to  the  subjects  of  Great 
Britain,    and   on    merchandises   or 
efTects  laden  thereon. 


An  Act  to  repeal  an  Act  made  in  the 
twenty-fifth  year  of  the  reign  of  his 
present  Majesty,  intituled  "An  Act 
for  regulating  Insurances  on  Ships, 
and  on  goods,  merchandises,  or 
efifects,"  and  for  substituting  other 
provisions  for  the  like  purpose  in 
lieu  thereof. 


The  whole  Act  so 
far  as  it  relates  to 
marine  insurance. 


31  &  32  Vict.       The    Policies   of   Marine   Assurance    The  whole  Act. 
c.  86.  Act,  18G8. 


APPENDIX  F 
MARINE  INSURANCE  (GAMBLING  POLICIES) 

A  BILL  TO  PROHIBIT  GAMBLING  ON  LOSS  BY  MARITIME  PERILS 

(1909) 

Be  it  enacted  by  the  King's  most  Excellent  Majesty,  by  and  with  the 
advice  and  consent  of  the  Lords  Spiritual  and  Temporal,  and  Commons,  in 
this  present  Parliament  assembled,  and  by  the  authority  of  the  same,  as 
follows : — 

1.  Prohibition  of  Gambling  on  Loss  by  Maritime  Perils. — (1)  If 

(a)  Any  person  effects  a  contract  of  marine  insurance  without 
having  any  bond  fide  interest,  direct  or  indirect,  either  in  the 
safe  arrival  of  the  ship  in  relation  to  which  the  contract  is 
made  or  in  the  safety  or  preservation  of  the  subject-matter 
insured,  or  a  bond  fide  expectation  of  such  an  interest;  or 

(b)  Any  person  in  the  employment  of  the  owner  of  a  ship,  not  being 
a  part  owner  of  the  ship,  effects  a  contract  of  marine  insurance 
in  relation  to  the  ship,  and  the  contract  is  made  "interest  or 
no  interest,"  or  "without  further  proof  of  interest  than  the 
policy  itself, "  or  "without  benefit  of  salvage  to  the  insurer,  " 
or  subject  to  any  other  like  term, 

the  contract  shall  be  deemed  to  be  a  contract  by  way  of  gambling 
on  loss  by  maritime  perils,  and  the  person  effecting  it  shall  be 
guilty  of  an  offence,  and  shall  be  liable,  on  summary  conviction, 
to  imprisonment,  with  or  without  hard  labour,  for  a  term  not  ex- 
ceeding six  months,  or  to  a  fine  not  exceeding  one  hundred  pounds, 
and  in  either  case  to  forfeit  any  money  he  may  receive  under  the 
contract. 

(2)  Any  broker  through  whom,  and  any  insurer  with  whom,  any  such 
contract  is  effected  shall  be  guilty  of  an  offence  and  liable  on  sum- 
mary conviction  to  the  like  penalties  if  he  acted  knowing  that  the 
contract  was  by  way  of  gambling  on  loss  by  maritime  perils  within 
the  meaning  of  this  Act. 

(3)  Proceedings  under  this  Act,  shall  not  be  instituted  without  the 
consent  of  the  Attorney-General. 

(4)  Proceedings  shall  not  be  instituted  under  this  Act  against  a  person 
(other  than  a  person  in  the  employment  of  the  owner  of  the  ship 
in  relation  to  which  the  contract  was  made)  alleged  to  have  effected 
a  contract  by  way  of  gambling  on  loss  by  maritime  perils  until  an 
opportunity  has  been  afforded  him  of  showing  that  the  contract 

415 


■\]{)  MAh'fXK  IXSlhWNCE 

was  not.  such  a  contract  as  aforosaid,  and  any  information  ^iven 
hy  (liat  iM'.rson  for  that  i)iir|)ose  shall  not  he  admissible  in  evidence 
against  him  in  any  i)roHocution  imd(;r  this  Act. 

(5)  If  proce»>dinKs  under  this  Act  are  taken  against  any  person  (other 
than  a  person  in  the  employment  of  the  owner  of  the  ship  in  relation 
to  which  the  contract  was  made)  for  effecting  such  a  contract,  and 
the  contract  was  made  "interest  or  no  interest"  or  "without 
further  proof  of  interest  than  the  policy  itself,"  or  "without  benefit 
of  salvage  to  the  insurer"  or  subject  to  any  other  like  term,  the 
contract  shall  be  deemed  to  be  a  contract  by  way  of  gambling  on 
loss  by  maritime  perils  unless  the  contrary  is  proved. 

(G)  Anj'  person  aggrieved  by  an  order  or  decision  of  a  court  of  summary 
jurisdiction  under  this  Act,  may  appeal  to  quarter  ses.sion3. 

(7)  For  the  purposes  of  this  Act  the  expression  "Owner"  includes 
charterer. 

(8)  Subsections  (3)  and  (G)  of  this  section  shall  not  apply  to  Scotland. 

2.  Short  Title. — This  Act  may  be  cited  as  the  Marine  Insurance  (Gambling 
Policies)  Act,  1909,  and  the  Marine  Insurance  Act,  190G,  and  this  Act  may 
be  cited  together  as  the  Marine  Insurance  Acts,  1906  and  1909. 


APPENDIX  G 

THE  HARTER  ACT 
ACT  OF  CONGRESS,  APPROVED  FEBRUARY  13,  1893 

An  Act  relating  to  navigation  of  vessels,  bills  of  lading,  and  to  certain 
obligations,  duties,  and  rights  in  connection  with  the  carriage  of  property. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  Anaerica  in  Congress  assembled, 

Section  1.  That  it  shall  not  be  lawful  for  the  manager,  agent,  master 
or  owner  of  any  vessel  transporting  merchandise  or  property  from  or  between 
ports  of  the  United  States  and  foreign  ports  to  insert  in  any  bill  of  lading 
or  shipping  document  any  clause,  covenant,  or  agreement  whereby  it,  he, 
or  they  shall  be  relieved  from  liability  for  loss  or  damage  arising  from  negli- 
gence, fault,  or  failure  in  proper  loading,  stowage,  custody,  care,  or  proper 
delivery  of  any  and  all  lawful  merchandise  or  property  committed  to  its 
or  their  charge.  Any  and  all  words  or  clauses  of  such  import  inserted  in 
bills  of  lading  or  shipping  receipts  shall  be  null  and  void  and  of  no  effect. 

Section  2.  That  it  shall  not  be  lawful  for  any  vessel  transporting  mer- 
chandise or  property  from  or  between  ports  of  the  United  States  of  America 
and  foreign  ports,  her  owner,  master,  agent  or  manager  to  insert  in  any  bill 
of  lading  or  shipping  document  any  covenant  or  agreement  whereby  the 
obligations  of  the  owner  or  owners  of  said  vessel  to  exercise  due  diligence, 
properly  equip,  man,  provision,  and  outfit  said  vessel,  and  to  make  said 
vessel  seaworthj^  and  capable  of  performing  her  intended  voyage,  or  whereby 
the  obligations  of  the  master,  officers,  agents,  or  servants  to  carefully  handle 
and  stow  her  cargo  and  to  care  for  and  properly  deliver  same,  shall  in  any- 
wise be  lessened,  weakened,  or  avoided. 

Section  3.  That  if  the  owner  of  any  vessel  transporting  merchandise  or 
property  to  or  from  any  port  in  the  United  States  of  America  shall  exercise 
due  diligence  to  make  the  said  vessel  in  all  respects  seaworthy  and  properly 
manned,  equipped,  and  supplied,  neither  the  vessel,  or  owners,  agents,  or 
charterers  shall  become  or  be  held  responsible  for  damage  or  loss  resulting 
from  faults  or  errors  in  navigation  or  in  the  management  of  said  vessel,  nor 
shall  the  vessel,  her  owner  or  owners,  charterers,  agent,  or  master,  be  held 
liable  for  losses  arising  from  dangers  of  the  sea  or  other  navigable  waters, 
acts  of  God,  or  public  enemies,  or  the  inherent  defect,  quality,  or  vice  of  the 
thing  carried,  or  from  insufficiency  of  package,  or  seizure  under  legal  process, 
or  for  loss  resulting  from  any  act  or  omission  of  the  shipper  or  owner  of  the 
goods,  his  agent  or  representative,  or  from  saving  or  attempting  to  save  life 
or  property  at  sea,  or  from  any  deviation  in  rendering  such  service. 

417 


418  MAh'IM':  IXSCIiANCE 

Section  4.  That  it  .shull  l)c  llic  duty  of  tlic  owner  or  owners,  master,  or 
aRont  of  any  vessel  transj)ortinK  merchandise  or  property  from  or  between 
ports  of  the  United  States  and  foreign  ports  to  issue  to  shippers  of  any  law- 
ful merchandise  a  bill  of  lading,  or  shipping  document,  stating,  among  other 
things,  the  marks  necessary  for  identification,  number  of  packages,  or  quan- 
tity, stating  whether  it  be  carrier's  or  shipper's  weight,  and  apparent  order 
or  condition  of  such  merchandise  or  property  delivered  to  and  received  by 
the  owner,  master,  or  agent  of  the  vessel  for  transportation,  and  such  docu- 
ment shall  be  prima  facie  evidence  of  the  receipt  of  the  merchandise  therein 
described. 

Section  5.  That  for  a  violation  of  any  of  the  provisions  of  this  Act  the 
agent,  owner,  or  master  of  the  vessel  guilty  of  such  violation,  and  who  re- 
fuses to  issue  on  demand  the  bill  of  lading  herein  provided  for,  shall  be  lialile 
to  a  fine  not  exceeding  two  thousand  dollars.  The  amount  of  the  fine  and 
costs  for  such  violation  shall  be  a  lien  upon  the  vessel,  whose  agent,  owner,  or 
master  is  guilty  of  such  violation,  and  such  vessel  may  be  libeled  therefor 
in  any  district  court  of  the  United  States,  within  whose  jurisdiction  the  ves- 
sel may  be  found.  One-half  of  such  penalty  shall  go  to  the  party  injured  by 
such  violation  and  the  remainder  to  the  Government  of  the  United  States. 

Section  6.  That  this  Act  shall  not  be  held  to  modify  or  repeal  sections 
forty-two  hundred  and  eightj'-one,  fortj'-two  hundred  and  eighty-two,  and 
forty-two  hundred  and  eighty-three  of  the  Revised  Statutes  of  the  United 
States,  or  any  other  statute  defining  the  liability  of  vessels,  their  owners, 
or  representatives. 

Section  7.  Sections  one  and  four  of  this  act  shall  not  apply  to  the  trans- 
portation of  live  animals. 

Section  8.  That  this  Act  shall  take*  effect  from  and  after  the  first  day 
of  July,  eighteen  hundred  and  ninctj-three. 


APPENDIX  H 
YORK -ANTWERP  RULES  OF  1890 

RULE  I.— JETTISON  OF  DECK  CARGO 

No  jettison  of  deck  cargo  shall  be  made  good  as  general  average. 
Every  structure  not  built  in  with  the  frame  of  the  vessel  shall  be  con- 
sidered to  be  a  part  of  the  deck  of  a  vessel. 

RULE  II.—  DAMAGE  BY  JETTISON  AND  SACRIFICE  FOR  THE  COM- 
MON SAFETY 

Damage  done  to  a  ship  and  cargo,  or  either  of  them,  by  or  in  consequence 
of  a  sacrifice  made  for  the  common  safety,  and  by  water  which  goes  down  a 
ship's  hatches  opened  or  other  opening  made  for  the  purpose  of  making  a 
jettison  for  the  common  safety,  shall  be  made  good  as  general  average. 

RULE  III.— EXTINGUISHING  FIRE  ON  SHIPBOARD 

Damage  done  to  a  ship  and  cargo,  or  either  of  them  by  water  or  otherwise, 
including  damage  by  beaching  or  scuttling  a  burning  ship,  in  extinguishing 
a  fire  on  board  the  ship,  shall  be  made  good  as  general  average;  except  that 
no  compensation  shall  be  made  for  damage  to  such  portions  of  the  ship  and 
bulk  cargo  or  to  such  separate  packages  of  cargo,  as  have  been  on  fire. 

RULE  IV.— CUTTING  AWAY  WRECK 

Loss  or  damage  caused  by  cutting  away  the  wreck  or  remains  of  spars,  or 
of  other  things  which  have  previously  been  carried  away  by  sea-peril,  shall 
not  be  made  good  as  general  average. 

RULE  v.— VOLUNTARY  STRANDING 

When  a  ship  is  intentionally  run  on  shore,  and  the  circumstances  are  such 
that  if  that  course  were  not  adopted  she  would  inevitably  sink,  or  drive  on 
shore  or  on  rocks,  no  loss  or  damage  caused  to  the  ship,  cargo  and  freight, 
or  any  of  them,  by  such  intentional  running  on  shore  shall  be  made  good  as 
general  average.  But  in  all  other  cases  where  a  ship  is  intentionally  run 
on  shore  for  the  common  safety,  the  consequent  loss  or  damage  shall  be 
allowed  as  general  average. 

RULE  VI.— CARRYING  PRESS  OF  SAIL.— DAMAGE  TO  OR  LOSS  OF 

SAILS 

Damage  to  or  loss  of  sails  and  spars,  or  cither  of  them,  caused  by  forcing 
a  ship  off  the  ground,  for  the  common  safety,  shall  be  made  good  as  general 

419 


420  MAUISE  IWSURANCE 

ftvcrano;  but  whore  a  sliip  is  afloat,  no  loss  or  damage  caused  to  the  ship, 
cai^o,  and  froight,  or  any  of  thcni,  l)y  carrying  a  press  of  sail,  shall  be  made 
good  as  general  average. 

RULE    VII.— DAMAGE    TO    ENGINES    IN    REFLOATING    A    SHIP 

Damage  caused  to  machinery  and  boilers  of  a  ship,  which  is  ashore  and 
in  a  position  of  peril,  in  endeavoring  to  refloat,  shall  be  allowed  in  general 
average,  when  shown  to  have  arisen  from  an  actual  intention  to  float  the 
shi])  for  the  common  safety  at  the  risk  of  such  damage. 

RULE   Vm.— EXPENSES  OF  LIGHTENING  A  SHIP  WHEN  ASHORE, 
AND  CONSEQUENT  DAMAGE 

When  a  ship  is  ashore,  and,  in  order  to  float  her,  cargo,  bunker  coals, 
and  ship's  stores,  or  any  of  them  are  discharged,  the  extra  cost  of  lightening, 
lighter  hire,  and  reshipping  (if  incurred),  and  the  loss  or  damage  sustained 
thereby,  shall  be  admitted  as  general  average. 

RULE  K.— CARGO,  SHIP'S  MATERIALS,  AND  STORES  BURNT  FOR 

FUEL 

Cargo,  ship's  materials,  and  stores,  or  any  of  them,  necessarily  burnt  for 
fuel  for  the  common  safety  at  a  time  of  peril,  shall  be  admitted  as  general 
average,  when  and  only  when  an  ample  supplj'  of  fuel  had  been  provided; 
but  the  estimated  quantity  of  coal  that  would  have  been  con.sumed,  calcu- 
lated at  the  price  current  at  the  ship's  last  port  of  departure  at  the  date  of 
her  leaving,  shall  be  charged  to  the  shipowner  and  credited  to  the  general 
average. 

RULE  X.— EXPENSES  AT  PORT  OF  REFUGE,  ETC. 

(a)  When  a  ship  shall  have  entered  a  port  or  place  of  refuge,  or  shall  have 
returned  to  her  port  or  place  of  loading,  in  consequence  of  accident,  sacri- 
fice or  other  extraordinarj'  circumstances,  which  render  that  necessary  for 
the  common  safety,  the  expenses  of  entering  such  port  or  place  shall  be  ad- 
mitted as  general  average;  and  when  she  shall  have  sailed  thence  with  her 
original  cargo,  or  a  part  of  it,  the  corresponding  expenses  of  leaving  such  port 
or  place,  consequent  upon  such  entry  or  return,  shall  likewise  be  admitted 
as  general  expense. 

(6)  The  cost  of  discharging  cargo  from  a  ship,  whether  at  a  port  or  place 
of  loading,  call,  or  refuge,  shall  be  admitted  as  general  average,  when  the  dis- 
charge was  necessary  for  the  common  safety  or  to  enable  damage  to  the  ship, 
caused  by  sacrifice  or  accident  during  the  voyage,  to  be  repaired,  if  the  re- 
pairs were  necessary  for  the  safe  prosecution  of  the  voyage. 

(c)  Whenever  the  cost  of  discharging  cargo  from  a  ship  is  admissible  as 
general  average,  the  cost  of  reloading  and  storing  such  cargo  on  board  the 
said  ship,  together  with  all  storage  charges  on  such  cargo,  shall  likewise  be 
so  admitted.     But  when  the  ship  is  condemned  or  does  not  proceed  on  her 


APPENDIX  421 

original  voyage,  no  storage  expenses  incurred  after  the  date  of  the  ship's  con- 
demnation or  of  the  abandonment  of  the  voyage  shall  be  admitted  as 
general  average. 

id)  If  a  ship  under  average  be  in  a  port  or  place  at  which  it  is  practicable 
to  repair  her,  so  as  to  enable  her  to  carry  on  the  whole  cargo,  and  if,  in  order 
to  save  expenses,  either  she  is  towed  thence  to  some  other  port  or  place  of 
repair  or  to  her  destination,  or  the  cargo  or  a  portion  of  it  is  transhipped  by 
another  ship,  or  otherwise  forwarded,  then  the  extra  cost  of  such  towage, 
transhipment  and  forwarding,  or  any  of  them  (up  to  the  amount  of  the  extra 
expense  saved)  shall  be  payable  by  the  several  parties  to  the  adventure  in 
proportion  to  the  extraordinary  expense  saved. 

RULE  XI.— WAGES  AND  MAINTENANCE  OF  CREW  IN  PORT  OF 

REFUGE,  ETC. 

When  a  ship  shall  have  entered  or  been  detained  in  any  port  or  place  imder 
the  circumstances,  or  for  the  purpose  of  the  repairs  mentioned  in  rule  X, 
the  wages  payable  to  the  Master,  Officers,  and  Crew,  together  with  the  cost 
of  maintenance  of  the  same,  during  the  extra  period  of  detention  in  such 
port  or  place  until  the  ship  shall  or  should  have  been  made  ready  to  proceed 
on  her  voyage,  shall  be  admitted  as  general  average.  But  when  the  ship 
is  condemned  or  does  not  proceed  on  her  original  voyage,  the  wages  and 
maintenance  of  the  Master,  Officers,  and  Crew,  incurred  after  the  date  of 
the  ship's  condemnation  or  of  the  abandonment  of  the  voyage,  shall  not  be 
admitted  as  general  average. 

RULE  XII.— DAMAGE  TO  CARGO  IN  DISCHARGING,  ETC. 

Damage  done  to  or  loss  of  cargo  necessarily  caused  in  the  act  of  discharg- 
ing, storing,  reloading,  and  storing,  shall  be  made  good  as  general  average, 
when  and  only  when  the  cost  of  those  measures  respectively  is  admitted  as 
general  average. 

RULE  Xm.— DEDUCTIONS  FROM  COST  OF  REPAIRS 

In  adjusting  claims  for  general  average,  repairs  to  be  allowed  in  general 
average  shall  be  subject  to  the  following  deductions  in  respect  of  "new 
for  old,"  viz.: 

In  the  case  of  iron  or  steel  ships,  from  date  of  original  register  to  the  date 
of  accident, — 

Up  to  1  Year  Old.     (A.) 

All  repairs  to  be  allowed  in  full  except  painting  or  coating  of  bottom, 
from  which  one-third  is  to  be  deducted. 

Between  1  and  3  Years.     (B.) 

One-third  to  be  deducted  off  repairs  to  and  renewal  of  woodwork  of  hull, 
masts  and  spars,  furniture,  upholstery,  crockery,  metal  and  glassware,  also 
sails,  rigging,  ropes,  sheets  and  hawsers  (other  than  wire  and  chain)  awnings, 
covers,  and  painting. 


422  MMxIXI':  INSURANCE 

Ono-.sixth  to  bo  deduclod  off  wire  rinKinj;,  wire  ropes  and  wire  hawsers, 
chain  cables  and  chains,  donkey  engines,  steam  winches  and  connections, 
steam  cranes  and  connections;  other  repairs  in  full. 

Between  3  and  6  Years.     (C.) 

Deductions  as  above  under  Clause  B,  except  that  one-sixth  be  deducted 
ofT  ironwork  of  masts  and  spars,  and  machinery  (inclusive  of  boilers  and  their 
mountings). 

Between  6  and  10  Years.     (D.) 

Deductions  as  above  under  Clause  C,  except  that  one-third  be  deducted 
off  ironwork,  masts  and  spars,  repairs  to  and  renewal  of  all  machinery  (in- 
clusive of  boilers  and  their  mountings),  and  all  hawsers,  ropes,  sheets  and 
rigging. 

Between  10  and  15  Years.     (E.) 

One-third  to  be  deducted  off  all  repairs  and  renewals,  except  ironwork 
of  hull  and  cementing  and  chain  cables,  from  which  one-sixth  to  be  deducted. 
Anchors  to  be  allowed  in  full 

Over  15  Years.     (F.) 

One-third  to  be  deducted  off  all  repairs  and  renewals.  Anchors  to  be 
allowed  in  full.     One-sixth  to  be  deducted  off  chain  cables. 

Generally.     (G.) 

The  deductions  (except  as  to  provisions  and  stores,  machinery  and  boilers) 
to  be  regulated  by  the  age  of  the  ship,  and  not  the  age  of  the  particular 
part  of  her  to  which  they  apply.  No  painting  bottom  to  be  allowed  if  the 
bottom  has  not  been  painted  within  six  months  previous  to  the  date  of 
accident.  No  deduction  to  be  made  in  respect  of  old  material  which  is 
repaired  without  being  replaced  by  new,  and  provisions  and  stores  which 
have  not  been  in  use. 

In  the  case  of  wooden  or  composite  ships : — 

When  a  ship  is  under  one  year  old  from  date  of  original  register,  at  the 
time  of  accident,  no  deduction  new  for  old  shall  be  made. 

After  that  period  a  deduction  of  one-third  shall  be  made,  with  the  follow- 
ing exceptions: — 

.\nchors  shall  be  allowed  in  full.  Chain  cables  shall  be  subject  to  a  de- 
duction of  one-sixth  only. 

No  deduction  shall  be  made  in  respect  of  provisions  and  stores  which  had 
not  been  in  use. 

Metal  sheathing  shall  be  dealt  with,  by  allowing  in  full  the  cost  of  a  weight 
equal  to  the  gross  weight  of  metal  sheathing  stripped  off,  minus  the  proceeds 
of  the  old  metal.  Nails,  felt,  and  labor  metaling  are  subject  to  a  deduction 
of  one-third. 

In  the  case  of  ships  generally: — 


APPENDIX  423 

In  the  case  of  all  ships,  the  expense  of  straightening  bent  ironwork, 
including  labor  of  taking  out  and  replacing  it,  shall  be  allowed  in    full. 

Graving  dock  dues,  including  expenses  of  removals,  cartages,  use  of  shears, 
stages,  and  graving  dock  materials,  shall  be  allowed  in  full. 

RULE  XIV.— TEMPORARY  REPAIRS 

No  deductions  "new  for  old"  shall  be  made  from  the  cost  of  temporary 
repairs  of  damage  allowable  as  general  average. 

RULE  XV.— LOSS  OF  FREIGHT 

Loss  of  freight  arising  from  damage  to  or  loss  of  cargo  shall  be  made  good 
as  general  average  either  when  caused  by  a  general  average  act  or  when 
the  damage  to  or  loss  of  cargo  is  so  made  good. 

RULE  XVI.— AMOUNT  TO  BE  MADE  GOOD  FOR  CARGO  LOST  OR 
DAMAGED  BY  SACRIFICE 

The  amount  to  be  made  good  as  general  average  for  damage  or  loss  of 
goods  sacrificed  shall  be  the  loss  which  the  owner  of  the  goods  has  sustained 
thereby,  based  on  the  market  values  at  the  date  of  the  arrival  of  the  vessel 
or  at  the  termination  of  the  adventure. 

RULE  XVII.— CONTRIBUTORY  VALUES 

The  contribution  to  a  general  average  shall  be  made  upon  the  actual  values 
of  the  property  at  the  termination  of  the  adventure,  to  which  shall  be  added 
the  amount  made  good  as  general  average  for  property  sacrificed ;  deduc- 
tions being  made  from  the  shipowner's  freight  and  passage  money  at  risk 
of  such  port  charges  and  crew's  wages  as  would  not  have  been  incurred 
had  the  ship  and  cargo  been  totally  lost  at  the  date  of  the  general  average 
act  or  sacrifice,  and  have  not  been  allowed  as  general  average;  deduction 
being  also  made  from  the  value  of  the  property  of  all  charges  incurred  in 
respect  thereof  subsequently  to  the  general  average  act,  except  such  charges 
as  are  allowed  in  general  average. 

Passengers'  luggage  and  personal  effects  not  shipped  under  bill  of  lading 
shall  not  contribute  to  general  average. 

RULE  XVm.— ADJUSTMENT 

Except  as  provided  in  the  foregoing  rules,  the  adjustment  shall  be  drawn 
up  in  accordance  with  the  law  and  practice  that  would  have  governed  the 
adjustment  had  the  contract  of  affreightment  not  contained  a  clause  to 
pay  general  average  according  to  these  rules. 


APPENDIX  I 
AVERAGE  BOND 

WHEREAS,  the 
whereof  was  rnaater 

having  on  board  a  cargo  of 
sailed  from 

on  or  about  the  day  of  191 

bound  for 
and  in  the  course  of  her  said  voyage,  it  is  allpged  that 

AND  WHEREAS,  by  reason  of  the  occurrences  of  the  voyage,  certain  losses  and  expenses 
have  been  incurred,  and  other  further  losses  and  expenses  may  yet  be  incurred,  which  niay 
be  a  charge  by  way  of  General  Average  or  otherwise  upon  the  vessel,  her  freight,  her  cargo, 
or  either  of  them;  or  which  may  be  charges  upon  specific  interests. 

NOW  therefore,  we  the  subscribers,  owners,  and/or  charterers  of  said  vessel,  owners  of 
her  freight,  owners,  shippers  or  consignees  of  her  cargo,  or  agents  of  one  or  more  of  said 
parties  having  such  interest  as  we  have  severally  described  and  set  opposite  our  respective 
signatures  hereto,  in  consideration  of  the  waiver  of  the  rights  of  the  owner  and/or  other 
party  interested  herein  to  take  immediate  action  against  hull  and/or  freight  and/or  cargo 
for  the  enforcement  of  liens  and/or  General  Average  claims  and/or  other  claims  arising 
from  this  disaster  not  gi%ang  rise  to  liens  do  hereby  for  ourselves  personally  our  respective 
successors,  executors  and  administrators  and  for  our  principals  their  successors,  executors 
and  administrators,  severally  but  not  jointly  or  one  for  the  other  covenant  and  agree  to  and 
with 

and who  are  hereby  appointed  trustees  for  all  concerned,  that   all  losses 

and  expenses  as  aforesaid  which  shall  be  made  to  appear  to  be  due  from  us  or  our  principals 
or  from  any  firm  of  which  we  are  or  were  co-partners  at  the  time  any  liability  arose  under 
the  premises  shall  be  paid  unto  the  said 

and/or as  trustees  for  all  concerned,  provided  that  such  losses  and  ex- 
penses shall  be  state  and  apportioned  by Average  Adjusters,  in  accord- 
ance with  the  established  usages  and  laws  in  similar  cases;  and  that  such  payment  shall  be 
made  upon  the  completion  of  the  statement  of  such  losses  and  expenses  and  after  due  notice 
has  been  given  thereof. 

And  we  do  further  agree  to  furnish  promptly  to  said  adjusters  upon  their  request  all  such 
information  and  all  such  documents  as  they,  may  require  from  us  to  make  the  said  adjust- 
ment. 

This  bond  may  be  executed  in  several  parts  of  like  tenor  and  date,  the  whole  of  which  are 
to  constitute  but  one  bond  with  the  same  effect  as  if  each  of  said  parts  were  severally  signed 
by  us. 

In  the  event  of  the  compensation  for  any  services  which  have  been  or  may  hereafter  be 
rendered  in  whole  or  in  part  to  the  cargo,  whether  of  the  nature  of  salvage  or  otherwise, 
being  fixed  by  agreement  or  arbitration.  We  hereby  agree  to  pay  our  proportion  of  the  sum 
thus  fixed;  and  in  the  event  of  action  being  brought  to  recover  for  sucii  services.  We  hereby 
agree  to  give  bond  for  our  proportion  of  the  sum  sued  for,  in  the  same  manner  as  if  the 
person  or  persons  by  whom  suit  is  hroueht,  he  they  salvors  or  otherwise,  had  required  such 

424 


APPENDIX 


425 


bond  direct  from  ub,  before  Biirrciulering  the  carKo;  uiid  We  further  agree  to  piiy  and  fully 
satisfy  any  final  decree  that  may  be  rendered,  according  to  our  proportion  tliercof. 

IN  WITNESS  WHEREOF  we  have  to  these  presents  set  our  hands  in  the  City  of 

this  day  of  in  the  year  of  our  Lord 

one  thousand  nine  hundred  and 


SIGNATURES 


MARKS 
AND  NOS. 


INTEREST 


AMT.  OF 
INVOICE 


NAME  OF 
UNDERWRITER 


•120  MAlihSE  LWSURANCE 


APPENDIX  J 

Genehal  Avp:kage  Guarantee 

Form  of  Underwriters  Guarantee   for  the  Payment  of 
General  Average,  Salvacje  and  Special  Charges 


19 


In  consideration  of  the  delivery  from  the 
of  the  following  goods,  viz: 


Consigned  to 

without  the  requirement  of  a  deposit,  we  hereby  guarantee  the 
payment  of  all  General  Average,  Salvage  and/or  Special  Charges 
for  which  said  goods  are  liable. 


INDEX 


Abandonment,  16G,  330-333 

Adjusters,  362 

general  average,  301 

Age  of  discovery,  7 

A.  H.  U.  A.  forms 

1917  form,  235,  373 
auxiliary  form,  245,  377 
builders  risk  form,  246,  380 

Aids  to  navigation,  31 

Airplanes,  279 

American  Record,  The,  83 
page  of  record,  84 

"And  Arrival,"  meaning  of,  231 

Annual  statement,  366 

Anticipated  freight,  261 

Application,  100 

relation  to  policy,  103 
standard  form,  370-371 

Appraisers,  361 

Arbitrage,  294 

Arrests,  151 

"As  their  interest  may  appear,"  use 
of  the  expression,  120 

Assignment  of  policies,  106 
of  hull  pohcy,  238 
of  Lake  hull  policy,  242 

Assured,  the,  112 

At  and  from,  132,  134 

Auxiliary  vessels,  61,  244 
form  for  insuring,  377 
future  of,  246 

Average  clauses,  161-162 

free  of  particular  average,  194- 

198 
in  A.  H.  U.  A.  (1917  form),  238 
in  cargo  insurance,  194 
in    connection   with    particular 

average,  319 
in  hull  insurance,  223-224 

Average,  definition  of,  2 


Ballast,  vessels  in,  80 
Barratry,  147 
Bill  of  exchange 

acceptance  of,  58 

form,  57 

method  of  collection,  57 

origin  of,  47 

trading  in,  59 
Bill  of  lading,  48,  52,  53,  325 

freight,  257 
Binders,  100,  358 
Blanket  policies,  123 
Blockade,  269 
Bordereaux,  295 
Bottled  goods,  209 
Bottomry  bonds 

earhest  records,  2 

forms  distinguished,  3 

Grecian   exchange   for   placing 
bonds,  4 

insurable  interest  in,  115 

rate  of  interest,  3,  5 

sea  codes  in  re  bottomry,  5 
Breach  of  warranty,  180,  239 
Breakage,  215 
Brokers,  99,  342 

as  underwriter,  349 

duty  twofold,  346 

in  England,  351 

services    in     general     average, 
348 
Bruges,  important  port,  6 
Builders'  risks,  246,  380 
Bulk  cargo  carrieis,  66 
Bulkheads,  145 
Buoyancy,  70 

center  of,  73 
Burlaps,  214 
Burning,  198 


427 


428 


IXhKX 


Calms,  38 

('ancclliitioii  of  contracts,  10"),  'JoO 

Canned  ^oods,  20'.) 

Car^o  insurance,  180 

attachnicnt  of  risk,  182 

particular    average    on    ciirno, 
314 

risk  after  disciharf^c,  1:53 

valuation,  138 
Carrier's  liability,  1G5,  340 
Carthaginians,  4 
Certificate  of  enrollment,  326 
Certificate  of  insurance,  48,  54 

countersignature  of,  104 

form  of  certificate,  55 

is  quasi-negotiable,  56,  lOti 

payment  of  loss  in  foreign  cities, 
56,  121 

proof  of  loss,  325 

transfer  payment  of  loss,  121 
Charter  money,  256 
Charter  partj',  51,  256 

bareboat  form,  52 

standard  forms,  52 
Chartered  or  as  if  chartered,  262 
C.  I.  F.  (cost,  insurance,  freight),  49 
Civil  War,  24 
Classification  societies,  81 
Clipper  ships,  23 
Club  insurance,  229 
Coal  cargoes,  213 
Codes 

Barcelona,     Venice,     Florence, 
Bilbao,  8 

laws  of  Wisby,  5 

Marine  Insurance  Act,  1906,  20 
Co-insurance,  164,  292 
Collectible  freight,  258 
Collision,  198 

liability,  227,  228 
Commerce,   the  exchange  of   prod- 
ucts, 44 
Commercial  documents,  47 
Commercial  geography,  44 

racial  characteristics  affect  ma- 
rine insurance,  190 
Commissions  (brokers),  348 


('(iniinoii    carrier's    insurance,    215, 

216 
<  'onipetition;  elToct  on  rates,  95,  157 
Composite  vessels,  61,  63 
Concealments,  182 
Concrete  vessels,  61,  67 
Constructive  total  loss,  327 

American  and  English  i)ractice 
differs,  329 
C'ontraband  of  war,  270,  271 
Contributor}^  values  hull,  239 

in  general  average,  305-307 
Corporation  underwriting,  109 

efforts  to  break  monopoly,  17 

first  American  company,  22 

first  companies  organized,  14 

in  United  States,  97 

monopoly  repealed,  18 

new  companies,  19 

the  monopoly,  15 
Cost  and  freight  sales,  49 

insurance  and  freight  sales,  49 

sales,  48 
Cotton,  insurance  of,  204 
Crusaders,  5 
Currency  insurance,  217 
Currents,  37 
C.  &  F.  (cost  and  freight),  49 

Dairy  products,  209 

Darkness,  39 

Dead  freight,  259 

Dead  weight  capacity,  70 

Declaration  of  London,  269 

Deductible  average  clauses,  161 

in  Lake  hull  insurance,  242 
Derelicts,  37 

Destruction  of  neutral  prizes,  272 
Detainments,  152 
Deviation,  135,  136,  179 

excusable,  167 
Disbursements  insurance,  237 
Displacement,  69 

curve,  69 
Double  insurance,  163,  164 
Draft 

acceptance  of,  58 


INDEX 


429 


Draft,  form,  57 

nietliod  of  collection,  57 

origin  of,  47 

trading  in,  50 
Dressed  meats,  210 
Duty  insurance,  263 

Kggs,  209 

Elements  of  a  contract,  96 

Enemies,  150 

Engine,  the  marine,  64 

types  of,  68 
Explosion  risk,  277 
Expressed  warranties,  180,  181 
Extension  into  port,  133,  231 
Extrinsic  evidence  in  construing  of 
contract,  103 

F.  A.  S.  free  alongside,  48 
F.  I.  A.  insurance,  236 
Fire,  145,  203,  214,  309 

protection,  145 
Floating  policies,  122-124 

in  reinsurance,  285 
F.  O.  B.,  free  on  board,  48 
Fog,  38 

Fortuitous  losses,  93 
Franchise,  161 

effect  in  case  of  loss,  319 
Fraud,  6-143 

in  England,  18 

in  West  Indies,  23 

voids  policy,  182,  185 
Free-l)oard,  71 

Free  of  British  cai)ture  clause,  275 
Free  of  capture  and  seizure  clause, 

153 
Free  of  particular  average,  191 

F.  P.  A.  A.  C.  and  F.  P.  A.  E.  C, 
195-198 
Freight  contingency,  258 
Freight  insurance,  251 

delivery  of  cargo  in  specie,  257 

future  freights,  260 

in  general  average,  311 

pro-rata  itineris  peracti,  253 

when  is  freight  earned,  252 

29 


Frozen  meats,  210 

Fruits,  208 

Full  cargoes,  187,  201,  202 

General  average,  299 

adjusters,  301 

adjustment,  305 

bond,  302,  424 

definition,  301 

distinguished    from     particular 
average,  2 

earliest  records,  2 

elements  necessary  for,  302 

guarantee,  302,  426 

in  hull  insurance,  231 

introduced  into  policy,  172 

York- An  twerp  rules,  308,  419 
(Jeneral  cargoes,  187 
Genoese,  5 
Geography,  physical,  29 

commercial,  44 
Good  faith,  96,  98 
Grain  cargoes,  206,  207 
Gravity,  center  of,  73 
Greeks,  4 

Guaranteed  freight,  254 
Giudon  de  la  Mcr,  0 

Hanseatic  League,  5 

banished  from  England,  11 
controlled  commerce,  6-9 
practised  marine  insurance,  10 
the  steelyard,  10 

Harbors,  39 

types  of,  40 

Hartcr  act,  143 

text  of  act,  417 

Hemp,  207 

Hides  and  skins,  211 

Hull  insurance,  219 

attachment  of  risk,  133,  134 
auxiliary  vessels,  244,  377 
builders'  risks,  246,  380    ' 
Lake  vessels,  240,  382 
metal  vessels,  235,  373 
particular  average  on  hull,  320 
single  vessels  and  fleets,  219,  220 


430 


INDEX 


Hull,  vjiluatioii,  13'.),  221,  322 

woodt'ii  vessels,  213 
lliiiricancs,  33 

Ice,  38 

Illicit  trade,  105 
lii)pli(>(l  warranties,  173 
Iiicliinarcc  clause,  226 
Iiuliviflual  underwriters 

business  grows,  15,  10 

in  England,  13 

in  TTnited  States,  21,  97 
Inc|uiry,  meaning  of,  100 
Institute  trading  warranties,  223 
Insurable  interest,  97,  112 

extent  of,  113 

in  freiglit,  259 

must  be  definite,  117 

must  exist,  117 

who  has  insurable  interest,  114 
Insurance,  marine 

early  records,  6 

first  use  of  word,  7 

in  England,  9 

in  United  States,  22,  21,  25 

origin,  1 
Internal  combustion  engines,  08,  244 
International  law,  267,  273 
Invoice,  48,  325 

determines     relation     between 
buyer  and  seller,  50 

vise  of  consul,  51 
Iron  vessels,  61,  64 
Isherwood  system,  65 

Jettison,  1,  146,  309 
Jumbo  lines,  282 
Jute,  207 

Lake  time  clauses,  240,  382 
vessels,  67 

Law  of  averages,  95 

Law  of  marine  insurance 

early  codes  and  decisions,  19 
first  English  statute,  12 
in  New  York  State,  118 
law  of  the  place  in  construing 
of  contracts,  104 


Law     of     marine     insurance.    Lord 
Manstiold,  20 
Marine    Insurance    Act,    1906, 

20,  387 
jiro  posed  New  York  code,  27 

Laws  of  Wisby,  5 

Lay-up  return  premiums,  230,  242 

Ijoakage,  215 

Legal  conduct,  imjilied  warranty  of, 
174 
expenses  in  collision  cases,  228 

Letters  of  credit,  59 

of  mart  and  countermart,  151 

Liability  of  carrier,  143 

determined  by  bill  of  lading,  53 

Licenses  in  time  of  war,  276 

Limitation  of  liability,  122,  284,  287 

Liners,  51,  64 

Livestock  insurance,  128,  210 

Lloyd's  coffee  house,  13 

Lloyd's  List 

control  taken  by  Lloyd's,  16 
publication  commenced,  14 

Lloyd's  London,  organized,  15 

Lloyd's  News,  originated,  13 

Lloyd's  Register,  82 

Load  lines,  71 

advantages  of  law,  72 

Loan  receipts,  341 

Lombard  street,  11 

Lombards 

controlled  commerce,  6,  9 
in  England,  10 
leave  England,  11 

Longitudinal  framing,  65 

Lost  or  not  lost,  125 

Losses 

adjustment  of  loss,  160,  298 

doubtful  losses,  276,  338 

fortuitous  losses,  93 

general  average,  299 

general  discussion,  297 

not  covered  by  policy,  142,  143 

particular  average,  313 

proofs   and    payment   of,    159, 

160.  325 
salvage  losses,  318 


INDEX 


431 


Losses,  total  loss  of  part,  313 

total  and  constructive  total  loss, 

327 
war  losses,  336 

Machinery  insurance  as  cargo,  214 

as  hull,  220 
Manifest,  54 

Marine  engines,  64,  08,  244 
Marine  Insurance,  definition,  93 

purpose  of,  95 
Marine  Insurance  Act,  1900,  history 
of  act,  20 

text  of  act,  387 
Marine  Insurance  (Gambling  Poli- 
cies) Act  (1909),  21 
text  act  of,  415 
Master  of  vessel,  129 
Measurement  of  ships,  89 

for  cargo  capacity,  90 
Memorandum  clause,  168,  171 
Men-of-war,  150,  277 
Mercantile   customs    in   construing 

policies,  102 
Merchant  marine,  the  clipper  ship, 
23 

decline,  25 

revival,  27 
Meta-center,  75 
Meta-center  height,  75 
Metal  vessels,  61 

insurance  of,  235,  373 
Misrepresentations,  1S2 
Missing  vessels,  336 
Monopoly,  the,  15 

efforts  to  break  monopoly,  17 

monopoly  repealed,  18 
Monsoons,  33 
Moral  hazard,  88,  91 

in  hull  insurance,  220 
Mutual  companies,  352 

Nationality,  87 
Natural  forces,  32 

effect  on  cargo  insurance,  192 
Negligence,  94,  143 


Ocean,  the,  31,  32 
Office  organization,  356 
On  board  or  not  on  l)oard,  261 
On  deck  cargo,  127 

unsafe  deckloads,  8 
Open  policies,  122,  124 

in  reinsurance,  285 
Ore  cargoes,  213 

Parcel  post  insurance,  217 
Particular  average,  313 

distinguished  from  general  aver- 
age, 3 

method  of  adjustment,  314 

on  cargo,  314 

on  freight  and  duty,  317,  323 

on  hull,  320 

on  profits  and  commissions,  320 
Particular  charges,  314 
Payee  of  loss,  120 

loss  orders,  122 
Perils  of  the  sea,  143,  144 
Permanent  covers  in  England,  124 
Phoenicians,  4 
Physical  geography,  29 

methods  of  shipment  controlled 
by     physical     enviroment, 
189 
Pilferage,  94,  148 
Pirates,  148,  149 
PlimsoU  mark,  72 
Policy  forms 

basic  form  necessary,  186 

Britisli  form  of  policy,  109,  411 

for  hull  insurance,  234 

no    standard    forms  in    United 
States,  109 

standard  Lloyd's  policy  of  1779, 
16 

types  of  policies,  108 
Policy  of  insurance,  54,  101,  411 

assignment  of,  106 

attachment  of,    116,    129,    130, 
132-134 

effect  01    v^i'iiited,   written  and 
stamped  words,  102 

form  of  certificate,  55 


4.32 


INDEX 


I'oliiv  of   iiisiirniicc,  form  of  jjolicy, 
110,  111 
proof  of  loss,  325 
rules  for  constiiicf ion,  101,   112 
sinniiturc  of,  HIS 
torin illation  of  ri.sU,  l.'U 

Pools,  2»);{ 

Port  of  refuge, 

sale  of  Koods  at,  100 

Port  risk  iusuranec,  2152 

1*.  P.  1.  iusurance,  'l'M\ 

Preemption,  273 

Premium,  98,  157 

based  on  ordinary  transit,  199 
earned  when  risk  attaches,  150 
on  risk  insured  after  arrival,  108 
rates  used  in  Great  Britain,  158 
uniform  rate  desiralilc,  170 

Prepaid  freight,  254 

wrong  in  principle,  255 

Prior  insurance,  103 

Products  of  Agriculture,  203 
of  animals,  208 
of  the  forest,  212 
of  manufacturing,  213 
of  tlie  mines,  212 

Prompt     attacliment-im  plied     war- 
ranty of,  178,  179 

Proofs  of  loss,  159,  325 

Protection  and  indemnity  clause,  229 

Protest  of  master,  324 

Proximate  cause,  141,  335 

Refrigerated  goods,  128,  209 
Registered  mail  insurance,  217 
Reinsurance,  115,  281 

arbitrage,  294 

excess,  288 

loss  reinsurance,  290 

flat  reinsurance,  292 

pools,  293 

purpose  of,  284 

share  or  participating,  287 

shore  reinsurance,  291 
Representations,  182-184 
Reprisals,  151 
Respondentia  bonds,  3 


Restraints,  152 
Return  premium,  158 

in  hull  insurance,  230 

standard  form  for  claiming,  372 
Rhodians 

system    of    maritime    jurispru- 
dence, 2 
River  and  harbor  craft,  t>8 
Roaring  forties,  the,  33 
Romans,  4 
Rovers,  148,  149 

Salvage,  339 

associations,  80 

losses,  318 
Schedvde  rating,  205 
Scrip  certificates,  354 
Seaworthiness 

implied  warranty  of,  174 

not  applicable  to  time  hull  risks, 
170 

proof  of  breach,  178 

refers  to  inception  of  risk,  176 
to  vessel  not  cargo,  177 

tests  of,  175 

waiver  of,  177 
Securities,  217 
Self-trimming  vessels,  66 
Separate  vahiations,  224 
Shifted  cargoes,  74 
Silk,  211 
Sinking,  197 
Sisal,  207 

Skimmings  clause,  204 
Sjieed  of  vessels 

effect  on  cargo  insurance,  192 
Sprinklers,  145 
Stability  of  vessel,  08,  73 
Stamp  Act  in  Great  Britain,  124 
Statement,  annual,  300 
Statistics,  303 
Steam  injectors,  145 
Steel  vessels,  01,  63 
Steelyard,  the,  10 
Stevedores,  75 

loading  problems,  76 
Stiff  vessels,  75 


INDEX 


433 


Stipulations,  181 

Storms,  32 

Stranding,  197,  309 

Stress  and  strains,  77-79 

Strikers  and  locked  out  workmen, 

153 
Structural  design  of  vessels,  Gl 

effect  on  cargo  insurance,  192 
Subject  matter  of  insurance,  127 
Submarines,  278 
Subrogation,  339 
Subsequent  insurance,  1G3 
Sue  and  labor  ckuise,  1!')^),  150 
Sugar,  207 
Supercargo,  155 
Surveyors,  85,  358 
Sw(>at  damage,  204 
Symbols  of  ownership,  56 

Takings  at  sea,  151 

Taxation 

conflicting  taxation,  27,  28 
of  foreign  companies,  24 

Technical  words,  effect  of,  in  con- 
struing policy,  103 

Temporary  repairs,  321 

Tender  vessels,  75 

Term  of  policy  in  New  York,  122 
in  Great  Britain,  124 

Termini  of  jjolicies,  12G 

attachment  of  policy,  129,  130, 

132-134 
by  breach  of  contract,  135 
in  freight  insurance,  2G2 
risk  after  discharge,  133 
termination  of  risk,  131 

Thieves,  148 

Thirds  off,  225,  226,  311 

Tides,  36 

effect  on  harbor  development, 
37 

Total  loss,  327 
of  cargo,  334 
of  freight,  335 
of  hull,  334 

Total  loss  only  insurance,  232 

Total  loss  of  part,  313,  323 


Trade,  customs  of,  188,  189 

processes  of,  44 

routes  of,  29,  45,  193 

types  of,  46 
Trading  warranties,  222,  240 
Trading  with  the  enemy,  119,  275 
Tramps,  51,  64,  65 
Transit  floaters,  124 
Transportation  insurance,  96 
Types  of  vessels,  61 

effect  on  cargo  insurance,  191 
Typhoons,  33 

Under  deck  cargoes,  187 
"Underwriter's  organizations,  85 
Unneutral  service,  271 
Usage,  in  construing  policies,  102 

Valuations,  137 

basis  of  valuation,  138 

of  hulls,  221,  224 

valued  i)olicies  justified,  138 
Vegetables,  208 
Venetians,  5 
Vessels,  types  of,  61 

Wager  policies  prohibited,  8 
War  bureaus  (government),  279 
Warehouse  to  warehouse  clause,  132 
War  insurance,  150,  266 

losses,  336 
Warranties,  expressed,  180,  181 

implied,  173-180 

of  loading,  223 

of  neutrality,  274 

trading,  222,  240 
Washing  overboard,  146 
Waves,  34,  35 

Whom  it  may  concern,  106,  118,  119 
Wind,  32 

effect  on  ocean  routes,  33 

trade  winds,  33 
Winter  mooring  clause,  241 

storage  risks,  242 
Wood  cargoes,  212 
Wooden  vessels,  61-63,  243 

York-Antwerp  rules,  308 
text  of,  419 


^ 


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